Revlon, Inc.
Q4 2017 Earnings Call Transcript

Published: 20 Mar 2018

[Operator:]

Good evening, everyone, and thank you for joining the call. Earlier today, the company released its final results for the quarter and year ended December 31, 2017. 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 evening is Paul Meister, Executive Vice Chairman; and Chris Peterson, Chief Operating Officer, Operations and Principal Financial Officer. The discussion this evening might include the 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 the 2017 Form 10-K. 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 the 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 comparative discussion, remarks today will include pro forma results, which present the GAAP and non-GAAP results as if Revlon and Elizabeth Arden were a combined company 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 past reporting practices, the company has identified certain nonoperating 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. And finally, the discussion today will also include XFX variances, excluding the impact of foreign currency fluctuations on the period-over-period variances. 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:]

Thank you, very much, and good evening, to everyone that joined the call. As you've seen from our prerelease in January, I'm overseeing the day-to-day operations of Revlon as Executive Vice Chairman until we appoint a new CEO. Since Fabian Garcia's decision to step down as CEO, I've traveled extensively to our global markets, and in fact, I'm calling you today from Asia. I've met with our largest customers and have had the opportunity to begin to evaluate, on a more detailed basis, the strengths and weaknesses of the company. Our aim is to simplify and accelerate decision-making and empower our teams to drive market responsiveness to meet the challenges of the dynamic and growing beauty sector. In short, we hope to position Revlon for the success it deserves. We will streamline the organization and instill disciplined operating structures and enhance our new product development process to support our brands, and their customers and consumers. In doing so, we desire to unlock the value of our brands and reclaim our status as a trendsetter and a pioneer in an industry that's innovating and growing around us. While it's only been six weeks, there is a lot going on. Chris will now provide more insights into our Q4 performance. Thank you.

[Chris Peterson:]

Good evening, and thank you, Paul. As you saw from today's release, fourth quarter results were in line with the prerelease made several weeks ago. First, looking at our international business. Net sales grew 8% or 5% XFX during the quarter versus a year ago. We continue to see strong performance in Asia with double-digit growth for Elizabeth Arden in China and Taiwan and strong growth for Revlon in Hong Kong and Japan. During the fourth quarter, the Revlon brand grew in North America and continued to experience strong net sales growth internationally. The growth in North America was driven by less discounting and promotion and new merchandising fixtures, which have elevated the brand's in-store experience. The Elizabeth Arden brand achieved strong international net sales growth, which offset some continued softness in North America, with very strong growth in China behind Ceramides and White Tea fragrances. Now taking a moment to highlight some of the more recent initiatives we have implemented to strengthen and reposition our brands. In January, we announced the Revlon Live Boldly campaign, featuring five new brand ambassadors, who provide a more inclusive demonstration of beauty, including Gal, Ashley, Adwoa, Imaan and Raquel. The Live Boldly multimedia platform leverages social, digital and in-person interactions to engage, support and empower women through community building experiences and inspiring conversations. The initial reaction from consumers has been extremely positive, and we expect the new campaign to further build our consumer base. You may have also read about the launch of Elizabeth Arden's March On campaign, a partnership with Reese Witherspoon, which is designed to celebrate women's achievements and encourage women to support other women. The integrated marketing campaign features a limited-edition lipstick and the brand's signature Red Door red shade, which will be sold globally with 100% of the proceeds donated to UN Women. In addition to these repositioning efforts, we are making a significant investment in new permanent merchandising fixtures for Revlon and Almay to elevate the in-store brand experience for consumers. Moving now to online sales and the company's digital transformation. Fourth quarter online net sales increased 32% versus year ago. While online represents a small portion of our total sales, the online channel represents a significant growth opportunity for the company. In the quarter, we also made progress in social engagement, with Gartner group recently rating Revlon as the Most Improved Company in all of beauty. Lastly, to ensure we have the people and technologies in place to win in digital, we have established a new digital organization design, are adding people and are making significant investments to upgrade our technology platforms for digital excellence. We're making good progress with the recruitment of new talent to build our digital center of excellence and expect to transition from SapientRazorfish to in-house capabilities in the next few months. Turning now to an update on the integration of Elizabeth Arden. For the quarter, we delivered $28 million in synergies. And for the year ended December 31st, we realized $69 million in synergies and cost reductions compared to the $55 million to $60 million previously expected. Synergies realized in the quarter were driven primarily by in-sourcing of Elizabeth Arden production, with more than 8 million units of skin care, fragrance and color cosmetics produced in existing Revlon factories this year. We also realized benefits from the continued rollout of our new shared services model and additional real estate co-locations. While we remain on track with our integration activities, given lower sales volumes, we expect the total estimated synergies to be impacted over the multiyear period. I'd now like to take you through the company's financial performance for the fourth quarter, starting with total company results. We reported net sales of $787 million, a decrease of 1.8% from the prior year quarter, primarily driven by a net sales decline in North America, which was partially offset by international growth in the Elizabeth Arden segment and from the Revlon brand. On an XFX basis, net sales for the fourth quarter decreased by 3%. As reported gross margin was 58.3% compared to 56.5% in the prior year quarter, an increase of approximately 180 basis points, driven by the impacts of additional inventory costs in the prior year quarter related to the increase in the fair value of inventory acquired in the Elizabeth Arden acquisition and the realization of in-sourcing integration synergies. The increases were partially offset by higher obsolescence, higher returns and less overhead absorption. On an adjusted basis, gross margin was 58.4% in the fourth quarter of 2017 compared to 58.6% in the prior year period, a decline of 20 basis points due to higher obsolescence, sales returns and less overhead absorption, partially offset by the realization of synergies. As reported operating income was $21 million in the fourth quarter of 2017 compared to operating income of $25 million in the prior year period, driven by higher SG&A and acquisition and integration costs, partially offset by the increase in as reported gross profit. As reported operating income for the fourth quarter of 2017 includes a $10.8 million noncash goodwill impairment charge within the company's Global Color Brands reporting unit. As reported net loss was $77 million in the fourth quarter of 2017 compared to a net loss of $37 million in the prior year period. The greater net loss is a result of a higher provision for income taxes, which includes a noncash expense of $48 million associated with the reduction in deferred tax assets following the enactment of the Tax Cuts and Jobs Act in the U.S., partially offset by the favorable impacts of foreign currency fluctuations. During the fourth quarter of 2017, the company realized $28 million in synergies, as previously noted, and incurred approximately $22 million in restructuring and related charges in connection with the Elizabeth Arden integration program. Adjusted EBITDA of $112 million in the fourth quarter of 2017 decreased by 24.8% compared to $149 million in the prior year period, driven by declines in net sales and higher brand support spending, partially offset by realized synergies and cost reductions. Moving to segment results. Consumer segment reported net sales of $356 million in the fourth quarter of 2017, a decrease of 4% on an XFX basis compared to the prior year quarter. The decline was driven by net sales declines in the mass retail channel in North America due to continued softness in consumption and higher sales returns for the Almay brand. These net sales declines were partially offset by growth in net sales of the Revlon brand in both North America and internationally. Consumer segment profit decreased by 18% on an as reported and an XFX basis in the fourth quarter of 2017 as compared to the prior year period, primarily due to lower gross profit as a result of the decline in net sales as well as higher brand support expenses. Turning now to the Elizabeth Arden segment. We finished the fourth quarter with $313 million of net sales, an XFX increase of 2% compared to the prior year period, primarily driven by higher net sales of Elizabeth Arden-branded skin care and fragrances internationally, offset by lower net sales of designer and celebrity fragrances, primarily within the U.S. mass retail channel. Elizabeth Arden segment profit in the fourth quarter of 2017 was $49 million compared to $36 million in the prior year period. This 36% increase was primarily driven by lower cost of sales and SG&A expenses due to the realization of synergies and cost reductions in 2017, partially offset by higher brand support expenses. Finally, in the Professional segment, net sales in the fourth quarter of 2017 were $112 million, a decrease of 6% or 10% XFX compared to the prior year period, driven by continued lower net sales of American Crew men's grooming products as efforts to balance trade inventory continue, which were partially offset by higher net sales of Creme of Nature multicultural hair products. Professional segment profit decreased by 60% or 62% XFX in the fourth quarter compared to the prior year period, primarily resulting from lower gross profit driven by the declines in net sales, higher obsolescence and higher brand support expenses. Turning to liquidity. Free cash flow used in 2017 was $248 million compared to cash provided of $61 million in 2016. The decrease in free cash flow was driven by higher inventory levels, higher payments for interest, restructuring, acquisition and integration costs related to the Elizabeth Arden integration program and permanent displays as well as higher capital expenditures. Partially offsetting this were favorable changes in accounts payable and lower payments for income taxes and incentive compensation. In 2017, we spent $108 million in capital expenditures and $66 million in permanent displays. Our capital expenditures for 2017 included approximately $37 million for the integration of Elizabeth Arden. As of December 31, 2017, the company had drawn $157 million on its revolving credit facility and had $280 million of liquidity, consisting of $87 million of unrestricted cash and cash equivalents and $193 million in available borrowing capacity under the revolving credit facility. The company has continued to repatriate cash to the U.S. using tax-effective methods as part of continuing efforts to effectively manage its working capital needs. Before closing, I wanted to provide a brief update on the implementation of our new SAP ERP system, which went live at the beginning of February. The system is designed to support new customer technologies and processes and to improve performance. While the overall implementation steps are on schedule, our production capabilities and inventory recovery have been slower than expected, affecting our current order fulfillment levels. We have taken immediate actions to address the situation, have implemented a robust service recovery plan and have communicated with our key customers. Once the recovery plan is complete, we expect the new ERP system to provide significant new capabilities and benefits for the company. In closing, our financial performance in both net sales and adjusted EBITDA has demonstrated some improvement during the quarter. We continue to believe in the power of our brands and are encouraged by consumers' response to our new campaigns for Revlon, Elizabeth Arden and Almay. We have made great progress with our digital engagement and commerce. Nevertheless, it will take more time before we realize the benefits of our investments in capability building that are intended to contribute to long-term growth. We remain confident in the initiatives that we are implementing to help transform the company with a view toward delivering long-term sustainable growth. With that, we will now open the call up for questions.

[Operator:]

[Operator Instructions] The first question comes from William Reuter. Please go ahead.

[William Reuter:]

This is Mike on for Bill. Our first question is have you seen any changes in shelf space at brick-and-mortar retailers this past year?

[Chris Peterson:]

We've maintained space at most of the mass retailers in the U.S. We're continuing to open new doors in key regions and with new retail accounts as well as expanding space with some customers. We've had notable distribution expansion in Germany, France and Japan. But as I mentioned, we've maintained space broadly at most U.S. retailers.

[William Reuter:]

And then my last question is, could you break out for us what percentage of company sales are currently online? Or at least, when you guys think that this percentage will become material in the future?

[Chris Peterson:]

So, we ended 2017 with about 4% to 5% of our sales online, which is, as I mentioned, a pretty significant pickup versus where we were in the year ago period. And as I mentioned, we grew 31% in the quarter and above 30% actually for the fiscal year as well. So, it's a high growth channel that currently is now 4% or 5% of sales.

[Operator:]

The next question comes from Grant Jordan. Please go ahead.

[Grant Jordan:]

I guess, first question, wanted to hear more about the positive performance of the Revlon brand in North America in Q4, particularly relative to some of the trends reported by Nielsen. Was there anything in there in terms of the gross to net sales adjustment that helped that reported number? Or was it really picking up sell-through to customers?

[Chris Peterson:]

So, I would say that in the fourth quarter -- in the prior -- in the first three quarters of the year, the company was affected by retailer destocking of inventory, and that retailer destocking didn't happen in the fourth quarter. And so that drag, if you will, on the Revlon brand in the U.S. did not occur in the fourth quarter. We also began to ship some of the new initiatives in the fourth quarter associated with the restaged and the new Live Boldly campaign, and so I think the combination of the move to the new campaign and the lack of the retailer inventory destocking helped the brand power to growth in the quarter.

[Grant Jordan:]

Looking at the inventory number, it looks like you guys finished pretty high year-over-year at the end of the year. Was that in support of the new ERP system? Or was there something else driving that?

[Chris Peterson:]

So, I would say there were two things driving the inventory number. One was we were building inventory in support of the SAP conversion, which I -- as I mentioned in my -- in the prepared remarks, we converted over at the beginning of February. The second impact was, as we are in-sourcing the Elizabeth Arden production from contract manufacturers to in-house production, we are now buying raw and packed materials -- and packaging materials, and so there's a natural increase in our inventory levels as we in-source. Obviously, we think it's a good strategy because it drives significant synergy savings.

[Grant Jordan:]

Okay. And then on the systems issues you guys are facing, can you give any sort of estimate in terms of top line or bottom line impact?

[Chris Peterson:]

Too soon to tell at this point. As I mentioned in the prepared remarks, we've - the implementation steps are on schedule. We have had our production capabilities, and inventory recovery have been a little - have been slower than expected. But we're taking immediate actions to address the situation, and we've implemented a robust recovery plan.

[Grant Jordan:]

Okay. And then last question. Can you give any update on the rollout at Ulta?

[Chris Peterson:]

So, we are in process this quarter of, at Ulta, restaging the Almay brand. And this quarter, we're going to be moving from 2 feet to 4 feet. That transition of the walls and upgrade of the walls to the new fixtures started in January and continues, I think, through the beginning of April. Additionally, we are implementing new Revlon walls at Ulta as well that are backlit and much more engaging for the consumer. That transition also started in January and, I think, goes through April. Too soon to provide any read-through results from consumption, but we're on track with the resets.

[Operator:]

The next question comes from Karru Martinson. Please go ahead.

[Karru Martinson:]

Good afternoon. When we look at the sell-in for the new product, Almay, and the Revlon walls, how much of that was pulled forward into the fourth quarter? And when you kind of think about just kind of big picture, how much more will flow through here in the first quarter? And how much will go into the second quarter?

[Chris Peterson:]

Yes, so there were some of the new products pipeline that shipped in the fourth quarter, as you mentioned, and there will be additional that ships in the first quarter of this year. But if you look at what drove the overall company performance in terms of revenue growth, it continues to be the international business and the - and within the international business, the Elizabeth Arden segment. So yes, there was some pipeline that shipped in the fourth quarter, but not all of it. Some of it will ship in the first quarter as well.

[Karru Martinson:]

Okay. And on international, certainly strong growth coming out of Elizabeth Arden. But on the consumer side, we kind of were flattish on a year-over-year basis. What's going on in international? Are you seeing some of the same pressures that you saw in North America? Or is that something different going on there?

[Chris Peterson:]

I think it's more of a comparison issue versus the prior year. So, I don't think it's not something that we're seeing similar issues with regard to North America. It's more of a comparison issue from the base period in terms of pipeline shipment that happened in the year ago period.

[Karru Martinson:]

Okay. And certainly, a nice boost in liquidity. I think at third quarter, you guys were around $200 million, now at $280 million. Where do you guys stand today on your RP basket, given your capital structure? And how do you guys think about use of cash flow here, given all of the investments that you have but also certainly the opportunity set you have?

[Chris Peterson:]

Yes, so I think, as I mentioned in the prepared remarks, we ended the quarter with $280 million of liquidity. We've provided a more detailed description of the liquidity position in the 10-K, which we filed, which I would refer you to there. The way we think about capital is very much based on return on investment. And so, what we're looking at is investing in opportunities where the return on investment is significantly higher than the cost of capital. And that's the framework that we're evaluating the investments that we're making in the company.

[Operator:]

The next question comes from Hale Holden. Please go ahead.

[Hale Holden:]

Hi, thanks for taking my question. I had a couple. For the brand support spending that's been hitting your SG&A line, you said something, you think you're going to have to continue to offset some noise around the ERP or a lack of product on the shelf. I was just wondering when we might see that trail off or stabilize to get back to historical EBITDA margins.

[Chris Peterson:]

Yes. So, I think on the brand support spending, which I mentioned was a year-over-year impact, it wasn't -- part of the brand support -- what drove the brand support spending in the quarter was the new brand campaigns that we've launched on Revlon, on Elizabeth Arden and on Almay. And so, if you looked at the comparison, what you would see is we continued strong support through the fourth quarter of this year, but we were comparing against a relatively lower base in the fourth quarter of 2016.

[Hale Holden:]

Right. Just when I parlay those comments with what you said on the script about kind of delayed synergy capture from Arden because of the lower top line, it just sounds like that may continue for a while. Is that the way to think about it?

[Chris Peterson:]

Well, I think that we've got -- first of all, we -- obviously, we don't provide forward-looking guidance, but I think the way that we look at our brand support is we are looking at our brand support in terms of market mix modeling and looking at it in terms of how can we shift our marketing mix to drive greater returns from each dollar we're investing, and we see opportunities to do that. The absolute level of brand support that we're going to spend depends on what we need to do to be competitive in the market and what we think is the appropriate level to drive the brand appeal with consumers.

[Hale Holden:]

Okay. And I just had 2 other ones. The SAP issue, is that going to result in less product on shelf associated with your brand resets this spring? Is it something, I guess, we would see in the issue of sellout or lack of availability? Or is it simply on the inventory side?

[Chris Peterson:]

Yes. So, as I mentioned, the implementation has impacted our customer service levels, but we have taken immediate action steps to address the situation, and we've got a robust service recovery plan in place. And so, it's too early to say exactly what the impact is from this, but we've got a robust service recovery plan in place. And once we get the -- once the recovery plan is complete, we expect the ERP system to give us significant new capabilities and benefits that -- for the company.

[Operator:]

The next question comes from Mary Gilbert. Please go ahead.

[Mary Gilbert:]

I wondered if you can talk about how we should look at working capital now that you're ramping up for in-sourcing for Arden on a year-over-year basis for this year. And then also kind of the same lines along CapEx and brand support, should we look at comparable numbers to '17? Or will those -- some of those be coming down? And then also, I wondered if you could talk about some of the opportunities, Paul, that you've identified so far. I know it's still early, but I just thought maybe you could talk about what you're thinking in terms of unlocking value of the brand. And then what kind of reception that you're getting, how we can sort of qualitatively measure that to the new campaign?

[Chris Peterson:]

Paul, do you want to start on your observations, and then I'll come back with working capital?

[Paul Meister:]

No, I would say this may be a bias associated with where I happen to be sitting at the moment, but I alluded this -- to this in my comments. I think that we have a huge opportunity to increase speed and flexibility in local markets, particularly like the ones over in Asia. I think that, that is -- I would rank that as possibly the number one opportunity. I think the other thing going to unlocking the value of the brands is, I think, we have -- my initial observation in the company is we have a decision-making process, the speed of which can be enhanced and more focused, and I think that'll drive more responsiveness to the markets and the consumers and empower, frankly, our people to move more quickly in these markets. And I think that, that sort of broad picture will materialize in, frankly, I'd say lots of little ways as opposed to one big way, with the possible exception of more aggressiveness in Asia.

[Chris Peterson:]

On the -- Mary, on the working capital side, the way I would think about it is that the receivables and the payables are relatively constant in terms of days outstanding from where we are today. We don't have significant actions going to change those. The inventory level at the end of the year, as I mentioned, is probably a little bit inflated because we did have the prebuild from SAP in that number, so there is some opportunity that we see to take that number down over time. And most of the impact of the raw and packed materials from the in-sourcing of Arden has already been built into that number at the end of December.

[Mary Gilbert:]

And then just kind of looking at this year, and because it sounds like there's some pipeline fill kind of in the quarter for Revlon, when you sort of said that it was a return to growth, I just wondered if you could characterize, with the new campaigns, the innovation and where we are in that process so far in 2018 and how we can look at that innovation rolling out throughout the year both with Revlon and Almay. And also, are there any opportunities for Arden in restoring growth in North America? For example, are there opportunities to get into Ulta or other channels there with that brand?

[Chris Peterson:]

Yes. So, we have a very active new product development pipeline that we'll be launching throughout the year. As you know, in color cosmetics where you have a wall set, typically, we do resets twice a year, once in the -- sort of in the early spring and once in the early fall or late summer. And so, you're generally confined to those two periods if you're going to do a significant product launch. But for product categories that are outside of color cosmetics, you're not as constrained by the wall reset, and you can launch more frequently. You can also launch more frequently on e-commerce and online. And as we are building our e-commerce and online capability, that is allowing us to open up new product launch windows for new product development that we're bringing to market. So, you'll see a continuous stream of innovation from all of the company's big brands, including Revlon, Elizabeth Arden and Almay throughout this year as we go forward. So, it's not that we've launched it and there isn't going to be anything coming. We've got a relatively continuous stream. Those new product launches are synced up from a calendar standpoint with our marketing campaigns so that we have a coordinated marketing calendar and a new product development calendar that work in concert with each other. And so that's the approach that we're taking as we go forward here.

[Operator:]

The next question comes from Carla Casella. Please go ahead.

[Unidentified Analyst:]

This is [Megan] on for Carla. We just wanted to clarify, how much was - from the Ulta rollout, how much was the sell-in 4Q? And how much more do you expect to come? And if the rollouts are in all of the Ulta doors?

[Chris Peterson:]

Yes, the rollout for the new permanent walls in Ulta are in 1,000 Ulta doors, which was basically all of the Ulta doors in the U.S. for both Revlon and for Almay. The pipeline, as I mentioned, was partially shipped in the fourth quarter. But partially, it will be shipped in the first quarter of this year. So, it's not a - it's spread between the 2 quarters. We don't disclose at that level of detail the specific amounts. But that's where we are.

[Unidentified Analyst:]

Got it. And my second question was, what is your largest brand after Revlon and Almay and Elizabeth Arden? And would you, at one point, consider pruning that portfolio?

[Chris Peterson:]

So, our largest brands after Revlon, Elizabeth Arden and Almay would include brands like American Crew and others. I think we're always looking at the portfolio. We haven't announced anything, but we're always looking for opportunities to drive shareholder value. So...

[Unidentified Analyst:]

Got it. Do you - how long - and kind of shifting to the Professional side of inventory. I know you talked a little bit about inventory before. But how long do you think it takes before Professional inventory is balanced at retail?

[Chris Peterson:]

Yes. So, as I mentioned on one of the previous calls or maybe a couple, we've taken the proactive step in the U.S. to - we go to market with American Crew. We shipped a lot of the product through a distributor, and we had built up a large amount of inventory at that distributor. And so, we took the proactive actions starting in the second quarter of 2017 to pull back on shipments in to reduce the inventory at the distributor. The good news about that is we are seeing the diverted product that oftentimes shows up on Amazon marketplace reduce dramatically, and we're seeing the pricing go up significantly. And so, we have continued that proactive pullback, but we'll start to lap when we started that in the second quarter of 2018. And so, we think that, that will, at a minimum, cease to be a significant impact starting in the second quarter of 2018 because of the base period effect.

[Operator:]

The next question comes from Lucian Tira. Please go ahead.

[Lucian Tira:]

Thanks, guys. Could you comment really quick on how you view your liquidity and whether you think it's adequate over the course of the next 12 months?

[Chris Peterson:]

Sure. So, I talked about the company's liquidity position in the prepared remarks. At the end of December, we ended with $157 million drawn on the revolver. We had $200 million of liquidity, which consisted of $87 million of cash and $193 million of available borrowing capacity under the revolving credit facility. And we continue to believe that the company's liquidity position is sufficient for the next 12 months.

[Lucian Tira:]

Got it. And then you had made a comment to the effect that total synergies will be impacted over the future years due to lower top line. Could you expand on that a little bit? Are you now no longer seeing $190 million worth of total potential synergies from EA? Or how should we think about this?

[Chris Peterson:]

Yes. So, if you look at the EA synergy capture, the synergy capture was really split into a couple of pieces. There were purchasing savings, in-sourcing savings from in-sourcing production volume, and then there was SG&A savings. The SG&A -- the company is on track with all of the integration activities. But obviously, the in-sourcing production volume and the purchasing savings that are related to raw and packed materials are dependent on what the volume is of how much you're buying and how much you're producing. And so, as the company's revenue growth has come down, that has impacted the dollar amount of those 2 streams of the Elizabeth Arden synergies. And so, what we're saying is that we -- the -- we're on track with the activities, but the dollar amount is likely to be lower than the guidance we previously gave.

[Lucian Tira:]

Can you comment on how much lower that would be since you guys gave previous guidance before?

[Chris Peterson:]

We're not providing a specific number.

[Lucian Tira:]

Can you put a range around it?

[Chris Peterson:]

We're not providing a specific number.

[Lucian Tira:]

Great, thank you.

[Operator:]

The next question comes from [Jane Lawrence]. Please go ahead

[Unidentified Analyst:]

Hey guys, could you guys talk a little bit about promotional environment and customer returns? I know you said customer returns are lower in this quarter, but do you foresee that picking back up in the first quarter and beyond?

[Chris Peterson:]

Yes. Again, we don't give guidance, out-front guidance. What I would -- what I think we said was that we actually had higher returns in the fourth quarter. And certainly, in the Consumer segment as a result of the Almay brand repositioning that partially impacted the Consumer segment during the fourth quarter of this year. I think our returns, if you think about, conceptually, how do returns work going forward, returns generally are a function of new product launches that you're having. And so, it -- and generally, what we try to do is launch products that are launched in market and generate a higher velocity than the products that they're replacing, and that is a good trade-off.

[Operator:]

The next question comes from Tom Radionov.

[Tom Radionov:]

I appreciate the time. I just wanted to go back to the Professional business. And my understanding there that there's -- basically, there's really 3 key products, one being CND, another one being American Crew, and then you obviously have the professional hair product business in there as well. So, it seems to me that CND has been declining for a number of years now sort of on the back of very strong innovation and a strong cycle, and that the professional hair color business is a relatively stable business. Is it fair for me to assume that, to the extent you were not sort of doing the proactive cleaning of inventory vis-à-vis American Crew, that this business would be a lot more stable? And the reason why I'm asking this question is because, quite honestly, it's very rare for us to see Professional business that is declining as much as it is, and I'm just trying to understand if all of it or most of it is really driven by American Crew versus the other pieces of that business.

[Chris Peterson:]

So maybe a piece that can help on this. If you look at the Professional business in the quarter we reported, the Professional business in the international market grew by 8.5% as-reported and by 1.5% XFX. Where the Professional business was down being in North America, and that North America decline was really a function of two brands. The largest impact was the American Crew impact, where we had the proactive pullback. That proactive pullback will stabilize, as I mentioned, at the second quarter at the latest. And then the other impact, which you rightly point out, is CND, where the CND brand in North America is being impacted by lower-priced competitors. And so, we have a plan we're working on there that includes product innovation. But those are the two impacts.

[Tom Radionov:]

And I wanted to ask you, actually, something about the Revlon brand in North America as well. So, it seems to me that out of the four or five large legacy brands, CoverGirl has been the one that's been kind of doing the worst, and then Revlon obviously has not done that well but better than CoverGirl. They are out their sort of launching a pretty large campaign, and it seems like there's a lot of innovation on the shelves. And I'm just kind of curious when you think about -- and by the way, congrats on the Almay relaunch. The display sets do actually look very nice, and so do the new Revlon display sets. But I'm kind of curious when you think about the actual product innovation as opposed to just swapping out display sets. I've seen some new products on the shelves but nowhere near as many as what CoverGirl was doing. So, I'm just kind of curious when you think about the innovation pipeline for Revlon specifically, is that more of a 2019 event to the extent you have any plans in place? Or is that potentially a second half event?

[Chris Peterson:]

So, I think what you're going to see -- yes, I think what you're going to see on Revlon is you're going to see that we have a significant number of new product innovation planned for this year that's going to roll out over the course of the year. So, it's not a big bang restage, where we're relaunching all of the new product innovation all at the same time. We have a more sequenced approach to it. And I think that the other thing you're going to see, as we've been talking about previously, about our strategy to improve our new product development process, is that we believe that our new product development process will continue to improve as we go into 2019.

[Tom Radionov:]

I have one last question. In terms of the new management team, I guess, what's the timing for when you think you'll be able to find a permanent replacement for Fabian? And I guess, what kind of profile in terms of background are you looking for? And I'm sort of asking this because I'm trying to understand when and if that happens, is that then going to result in a sort of a change to the underlying strategy? Or are you looking for someone who's going to execute on the strategy that you've already developed?

[Paul Meister:]

Yes, I think that the answer to your question about management is we're in the process of a detailed evaluation of what I'd call the proper and most engaging skill set for that role. I would not expect a massive strategy change to occur once we find the person. But on the other hand, I don't think we're looking for someone that will merely execute a pre-existing strategy. With respect to timing, I guess I'd say when we've got our thoughts together, we will let people know.

[Operator:]

The next question comes from Colleen Burns. Please go ahead.

[Colleen Burns:]

Thanks. Most of mine have been answered, but just to circle back on the SAP ERP rollout issues, just to make sure I understand correctly. The order fulfillment issues that you're experiencing, is it delaying inventory being shipped to customers? And then if so, have you had to offer, thus far, discounts or incentives to customers to make up for the issues?

[Chris Peterson:]

No, we have not had to offer discounts or incentives to make up for the issues. What it's resulting in is we - when we - as we implemented, we came up, we started shipping to customers. But our customer service level is lower than what we would expect and what we are planning to ultimately achieve, and so our fill rate is lower than target. And that's why we've taken immediate actions to address the situation and put a robust service recovery plan into place.

[Colleen Burns:]

Okay. But you haven't had to offer any discounts or anything? You're just basically working with customers to increase the fill rates?

[Chris Peterson:]

Correct.

[Colleen Burns:]

Okay. And I may have missed CapEx guidance for 2018. Did you say what you're expecting CapEx would be?

[Chris Peterson:]

We are not providing guidance on CapEx for 2018.

[Colleen Burns:]

Would you expect it to be similar to what you - range [found] to what you saw in '17?

[Chris Peterson:]

We're not providing guidance.

[Colleen Burns:]

Okay. Alright.

[Operator:]

That concludes today Q&A session. I will now turn the call back over to your host to conclude today's conference.

[Chris Peterson:]

Okay. Thank you all for joining the call today and for your questions and interest in the business, and I also want to provide a special thanks to all of the Revlon employees around the world for their continued efforts to restore the company to growth over time. Thank you, very much, and good evening.

[Operator:]

Thank you for joining today's call. You may now replace your handsets.