Revlon, Inc.
Q1 2012 Earnings Call Transcript

Published: 26 Apr 2012

[Operator:]

Good morning, ladies and gentlemen, and welcome to Revlon’s First Quarter 2012 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. At the conclusion of today’s presentation, we will open the call for questions. (Operator Instructions) I would now like to turn the call over to Ms. Elise Garofalo, Revlon’s Senior Vice President, Treasurer and Investor Relations. You may now begin, Ma’am.

[Elise Garofalo:]

Thank you, Dorris. Good morning, everyone, and thanks for joining today’s call. Earlier today, we released our results for the first quarter ended March 31, 2012. If you’ve 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 Alan Ennis, Revlon’s President and Chief Executive Officer; Chris Elshaw, Chief Operating Officer; and Steven Berns, Chief Financial Officer. Before I turn the call over to Alan, I’d like to remind everyone of a few things. First, our discussion this morning might include forward-looking statements, which are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act. Information on factors that could affect the company’s results from time-to-time and cause them to differ materially from such forward-looking statements is set forth in the company’s filings with the SEC, including our 2011 Form 10-K and our 2012 first quarter Form 10-Q, which we filed earlier this morning. Next, our remarks today will include a discussion of adjusted EBITDA and free cash flow, both of which are non-GAAP measures. These non-GAAP measures are defined in the footnotes to our release and are also reconciled to the most directly comparable GAAP measure in the financial tables at the end of our release. And finally as a reminder, our discussion this morning should not be copied or recorded. With that, I’ll turn the call over to Alan.

[Alan Ennis:]

Thank you, Elise, and good morning everyone. As we’ve discussed with you in the past, Revlon’s vision is glamour, excitement and innovation through high quality products at affordable prices and this underpins everything we do. We realized this vision by executing the five key elements of our business strategy

[Chris Elshaw:]

Thank you, Alan, and good morning, everyone. Today, I will review our net sales performance excluding the impact of changes in foreign currencies by region, and by brand. Total company net sales in the first quarter of 2012 was $330.7 million, an increase of $1.5 million versus the first quarter of last year. The first quarter of 2012 benefited from the higher net sales of Revlon color cosmetics and Revlon Colorsilk hair color, as well as the inclusion of the net sales of Sinful Colors for a full quarter. These increases were partially offset by lower net sales of Almay color cosmetics and fragrances, as well as lower net sales in Venezuela, due to the June 2011 fire. In the United States, net sales in the first quarter of 2012, decreased $1.5 million. Lower net sales of Almay color cosmetics and Revlon beauty tools were partially offset by the inclusion of the net sales of Sinful Colors for a full quarter in 2012. The largest driver of lower net sales in the U.S was is in the eye segment of Almay color cosmetics, primarily the Intense I franchise. Last year, we had a very successful launch of Intense I smoky eye kit, which brought industry leading innovation to consumers. While we continued to expand to restate the Intense I franchise in 2012 it’s net sales performance, neither met our expectations nor matched its performance in the first quarter of 2011. We are not satisfied with our Almay’s U.S performance and as a result we are reviewing all elements of Almay’s marketing mix, including adaptations to our brand support times. Now let me return to a discussion of the first quarter results outside of the U.S. In Asia Pacific, net sales increased $1.2 million or 2.3% primarily due to the higher net sales of Revlon color cosmetics in certain distributor markets. Moving on to Europe, Middle East and Africa, net sales decreased to $800,000 or 1.6%. Lower net sales of fragrances in Italy and in certain distributor markets were partially offset by higher net sales of Revlon color cosmetics in certain distributor markets. We continue to be very pleased with the strong marketplace performance of the Revlon brand in the U.K. In Latin America, net sales increased $1.7 million or 6.3% primarily due to the higher net sales of Revlon color cosmetics and Revlon Colorsilk hair color, partially offset by the lower net sales in Venezuela/With respect to Venezuela you will recall, the price of the fire in June of last year, which destroyed our local facility. Approximately half of the net sales was sourced locally and the other half were imported from our U.S facility. In August of 2011, we resume shipping of products imported from the U.S and in 2012, we began importing certain products from third party manufacturers outside of Venezuela. However, net sales in Venezuela, have not resumed to the pre-fire level. Actions to address of sourcing of products previously manufactured locally are still under review at this time. Finally, with respect to our Canada region, net sales increased $900,000 or 5.2% primarily due to the higher net sales of Revlon color cosmetics and Revlon beauty tools. Now, moving onto the performance by brand, starting with Revlon cosmetics, total company net sales increased as compared to the prior year. We continue to innovate and introduce some great new products in size, we expanded our PhotoReady franchise with the introduction of three Lightweight primers. The use of primers is gaining traction as an additional step in the consumers makeup regime to transform skin into a smooth canvas for makeup application. Also within the PhotoReady franchise, we introduced Airbrush Mousse Makeup, which contains innovative photochromatic pigments that bend and reflect light to give a flawless air brushed appearance. Today Airbrush Mousse is performing well in the marketplace. In Eye, we introduced PhotoReady 3D volume mascara, a revolutionary volumizing mascara with a unique reflecting formula that makes lashes look a 100% more magnified, and multiplied. And continuing in eye, re-staged and upgraded Revlon ColorStay eyeshadow quotes with 16 hour wear and new premium design and packaging. This restaging is consistent with our approach of not just expanding our product range with new products, but also strengthening our existing products with new technology. In late, we extended our Revlon ColorBurst franchise introducing Revlon ColorBurst that’s a rebound that instantly contract while providing color with the high shine. Today, we launched our Revlon ColorBurst Lip Butter has been exceptionally well received in the marketplace. Lastly now, we introduced ColorStay Longwear Nail Enamel containing our exclusive color state light curing technology which cures in natural light versus the solid UV lights providing a gel like shine and 11 days of high impacts color. Today ColorStay nail color is performing very well in the marketplace. Three of our new Revlon Color Cosmetics products one Oprah Magazine spring makeup awards. Revlon ColorBurst Lip Butter, Revlon PhotoReady 3D volume mascara and ColorStay Longwear Nail Color. ColorBurst Lip Butter was also recognized in REDBOOK’s magazines May edition as possibly MVP Awards as the best interlock balm as well as the in Seventeen Magazine February edition as part of the 2012 read waves. Moving on to the Almay brand. As I discussed earlier in the business performance by region, net sales decreased year-over-year, driven by our performance in eye in the U.S. Aside from Eye from a marketplace perspective, we maintained a positive performance in space with our major in the period. Largely behind us much a franchise, which included the introduction of Almay’s first primer Smart Shade perfect incorrect. In women’s hair color, net sales of Revlon Colorsilk increased versus the first quarter of 2011. Building on the success of Colorsilk and culture of loom Mister we introduced Root Erase by Colorsilk, which erases roots and beautiful seamless color in 10 minutes. Root Erase was in housekeeping and also was recognized in Okay magazine spring beauty awards calling it the fastest roots fix. Year-to-date, we are pleased with the performance of our Root Erase and I’ll call franchise. And finally, with regard to Revlon beauty tools, net sales were down in the quarter. Well, our capital remain soft, we continue to maintain our strong position as the number one brand in the U.S and Canada. And in 2012, we have new products performing well in the marketplace including our Mini Tweezer Set and Designer Nail Files. Now, I’ll turn it over to Steven to walk you through the rest of our financial results for the quarter.

[Steven Berns:]

Thank you, Chris. As we have already discussed our net sales performance, I will start with gross margin performance in the quarter. In the first quarter of 2012, our gross profit margin was 65% versus 66% in the first quarter of 2011. The lower gross margin in the first quarter of 2012 was primarily due to the unfavorable impact of product mix. SG&A in the first quarter of 2012 decreased $4.5 million or 2.6% to $170.7 million primarily due to lower advertising expenses as a result of the timing of advertising campaigns as compared to 2011. Also in SG&A in the first quarter of 2012, we recognized a $1.1 million benefit from insurance recoveries essentially making the company financially whole for business interruption losses during the period related to the June 2011 fire in Venezuela. Additional details of the impact to our business of the Venezuela fire are included in our Form 10-Q filed earlier today. Operating income in the first quarter of 2012 was $44.3 million, compared to $44.7 million in the same period last year, and adjusted EBITDAR was $60 million compared to $60.7 million in the same period a year ago. Interest expense including dividends on preferred stock decreased $2.6 million to $21.6 million in the first quarter of 2012, primarily due to the refinancing of our term loan in May 2011 at lower interest rates. Income before taxes was $19.5 million, as compared to $18.1 million in the first quarter of 2011.The provision for income taxes was $11 million in the first quarter of 2012, compared to $7.7 million in the same period last year. Net cash paid for income taxes was $3.4 million in the first quarter of 2012, compared to $2.2 million in the same period last year.Net income in the first quarter. Net income in the first quarter of 2012 was $8.5 million or $0.16 per diluted share compared to net income of $10.4 million or $0.20 per diluted share in the same period last year. Moving on to cash flows, net cash used in operating activities in the first quarter of 2012 was $20.4 million, compared to a source of $24.1 million in the same period last year. Free cash flow was a negative $23.9 million, compared to a positive free cash flow of $21.7 million in the same period a year ago. 2012 included the renewal and partial pre-payment of premiums for certain of the company’s multi-year insurance programs. Second, during the first quarter of 2012, we began to experience the cash impact of higher sales returns and allowances as expected and as previously accrued for in the fourth quarter of last year. As a reminder, during our year-end 2011 earnings call in February of this year, we discussed a higher than usual number of product discontinuance in advance of our extensive 2012 new product introductions. And lastly, impacting cash flow in the first quarter of 2012 was a net unfavorable change to other working capital. As a reminder, with respect to operating cash flow in general, the timing of cash flows from working capital can vary from quarter-to-quarter based on a number of factors. We continue to closely manage our key working capital accounts including receivables, payables and inventory. On the liquidity front, our unutilized borrowing capacity and cash on hand as of March, 31 2012 was $200.4 million comprised of $78 million of available cash and $122.4 million available under our revolving credit facility. Our revolver was undrawn at the end of the quarter and we had $10.7 million of standby letters of credit issued under this facility. 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) And our first question comes from Carla Casella with JPMorgan.

[Alan Ennis:]

Good morning, Carla. Paul – JPMorgan

[Alan Ennis:]

Hi, Paul.

[Paul:]

Hi, how are you doing? First, I was wondering if you give us some color on the timing of your product launches this year versus last?

[Alan Ennis:]

Sure. I mean, as you know, around the world product launches vary by quarter. Within North America, there are 2 major tranches of product launches. So the – everyone in general ships the major tranche towards the end of the prior year in December, and they appear in store in December and January onwards. And then as the second tranche which happens towards the end of the second quarter of the year, appearing still from June onwards.

[Paul:]

Great. And is there any significant shifts in your sales given the Easter shift?

[Alan Ennis:]

No, we haven’t been conscious of any of that.

[Paul:]

Got you. And then, has some warm weather helped your sales in the U.S at all?

[Alan Ennis:]

There is – much of the correlation between the weather and some of our products, Paul.

[Paul:]

Great. And then finally, what are your thoughts around refinancing in your capital structure?

[Alan Ennis:]

As we always do, we look at the marketplace as well as our business when we evaluate our capital structure on a regular basis – there is nothing that we’ve done differently at this point time versus what we’ve done in the past. We evaluate and we make those decisions as and when appropriate.

[Paul:]

Great. Thanks very much.

[Alan Ennis:]

All right.

[Operator:]

Our next question comes from David Wu with Telsey Advisory Group.

[David Wu:]

Hi, good morning, everyone.

[Chris Elshaw:]

Hi, Dave.

[David Wu:]

Hi. First on the gross margin, you sound like you didn’t see an impact from higher promotional allowances this quarter, I am wondering if that implies that you’re seeing less competitive environment out there, and if you could perhaps talk about your expectations for the remainder of the year?

[Alan Ennis:]

Yeah. As it relates to gross profit in the first quarter, they’re were couple of impacts one, as we talked about there was the impact of product mix, which reduced gross profit as a percentage of net sales by about seven-tenths of a percentage point. In addition, we had higher allowances and those reduced gross profit as a percentage of net sales by about four-tenths of a point.

[David Wu:]

So, okay, so you did see higher allowances.

[Steven Berns:]

And offsetting also that were certain offsets to that one related to inventory obsolescence and sales returns and that had a increase to gross profit of about two-tenths of a point. And as we talked about the past, you know, our objective is to deliver a competitive operating margins. And so what we do is, we are looking at obviously the gross margin generated, and then the costs that we incur to support those products to drive consumption delivering the competitive operating margins that we once again see delivered in the first quarter of 2012.

[Steven Berns:]

I think, David, to add to that- add to Stevens’ point, as it relates to the environment, I mean, the competitive environment remains intense. And you know period to period, you’ll see, the competitive set shift between higher promotional activity and lower advertising or higher advertising or low promotional activity and we stay very tuned to that to make sure that we’re supporting our brands in both those drivers at the appropriate level. But it as intense as it has been.

[David Wu:]

Got it, and in Latin America, your performance in Venezuela, you obviously, is still impacted by the plant fire last year. I was wondering if you could perhaps give us an update on our manufacturing strategy there in the region? You did mention using some third party suppliers, which you could perhaps elaborate more on that and if ultimately you’re planning to rebuild a new plant there and timing on that?

[Alan Ennis:]

We’ll. I mean first of all, the first thing, I would say, to keep in mind, Venezuela was 2% of our net sales. Let’s keep that in context so small. Secondly, as we said pre-fire about sales being – Venezuela came from our U.S facility and the other half was sourced locally. We had a manufacturing facility that as you know gone down. We’ve now received as you said since last August supplies from our US facility and while – Venezuela facility still is burned down, and as no manufacturing going on there, we’ve had to resort to supplies from third-party manufacturers outside Venezuela. As for the future, at this stage and view our manufacturing going forward. Our first objective was to quickly get some product back in the marketplace to have to stay, we’ll have to take the alternatives that were available in the short term.

[David Wu:]

Great. And in, on ad spending. Can you elaborate more on the different timing in ad spending this year versus last year and when perhaps we should see in maybe some more pressure on SG&A on this year. And then, just related to marketing, can you perhaps talk about through that the findings of any new sort of consumer add or product testing, you’ve done recently and what you could do perhaps to drive better sales and especially on Almay. I know you you’ve previously just mentioned that you’re looking into new strategies there.

[Steven Berns:]

Okay. So, advertising, as Alan mentioned earlier, the mix between advertising and promotion. And just a reminder, from a financial reporting perspective, net sales were reported net to promotional allowances, while the advertising cost were recorded in SG&A. So depending on the nature of the brand supporting the period, it ends up being in different locations on the income statement, but that’s the first thing. And secondly, I would say, effective brand support not just about advertising but also primer activity digital and social media as well as in-store activities. So the way, we approach the business is, our strategies for advertising promotion is to drive the new product introductions with the appropriate levels of total advertising promotion, and not include these point of sale activities. We always plan to do that through coordinated joint business funds to our key customers. So that’s another key part of the equation that these are all related to what customers are doing and what way they’re doing. So that’s what I would say about advertising. In terms of product testing, we extensively tested all of our new products before we launched them, we’ve certain actions done, that we must meet before the product where they are launched, and we also tested our advertising. And over the last five years, advertising test scores have consistently returned, so very happy with these effectiveness of our advertising. And then you asked about Almay, as I said, the Almay decline was driven by the eye performance. Simple thing to say about the Almay brand, first of all, each are well defined brand with a low customer base among consumers with sensitive skin and eyes. That’s a great benefit we have, and our offering is positioned to meet that need. So as we focus on enhancing that within a number of things first of all, we were working on refining the brand proposition to the consumer, we’re also improving the merchandise of the brand, which includes the instore roll out as well as graphics and packaging. And then we’re going to continue doing some things looking very well for us, so leveraging Kate Hudson, who is our Almay brand ambassador who believe we had a very positive impact with consumers. And we also continue to focus on innovative new product development, which you know in this category. That’s a key driver of net sales performance.

[David Wu:]

Excellent. And then just lastly, can you comment on how inventory levels are tracking across the U.S mass retailers and drug stores and whether or not that the sell-in versus sell-out rates are potentially more or less in line with each other?

[Steven Berns:]

Yeah, I think that as we constantly say, instant inventory is an constant focus of the retailers, and they’re watching it constantly, we watch it with them because in our interest to have the right inventory there. We haven’t called out any impacts in the quarter from inventory fluctuations, it’s a constant source of focus for both the retailer and us.

[David Wu:]

Great. Thank you very much.

[Operator:]

And our next question comes from Reza Vahabzadeh with Barclays.

[Reza Vahabzadeh:]

Good morning.

[Alan Ennis:]

How are you?

[Reza Vahabzadeh:]

Good. As far as marketing spending at this quarter it was marketing spending was down, but as you mentioned you have an extensive line of new products, said to be unfolded and then shipped out. So does that mean that essentially marketing spending for the rest of the year is likely to be up?

[Steven Berns:]

Well, your conclusion is not necessarily actual, what I said was marketing spending is a combination of advertising, which you see in SG&A and promotional allowances in which occur before net sales.

[Alan Ennis:]

So as I said, we constantly monitor the competitive environment. And in addition, work with our customers on our joint business plans. So the particular leave us with poll of any one-time can change, and we intend to name to support our new products with appropriate levels of what I would call brand support, advertising and promotion in-store display, merchandising, all those things. There are many parts of the marketing mix that’s in there. The other thing I would say is, be careful about looking at one quarter. Over a time is what we need to look at as a best indication of our brands, quarters change and things don’t necessarily always lineup within the quarter.

[Chris Elshaw:]

I think that the net point there Reza, is that, we’re going to spend what we believe to be appropriate in the marketplace both on advertising and means to commercial. And so as to know, you shouldn’t read anything into the decline in advertising spending in the first quarter.

[Reza Vahabzadeh:]

Okay. The reason I ask that because you clearly pointed out that promotional allowances were up 40 basis points in the first quarter, but SG&A was 100 basis points slower, so what one does look at our best indicators of total marketing spending promo and brand support. It seems like the first quarter was lower and yet you do have some new products we shipped out in the second quarter and so I just assume that this was a timing factor.

[Chris Elshaw:]

Well we believe our total advertising promotions support in the quarter was appropriate.

[Reza Vahabzadeh:]

Right. And then as far as the category in general. Can you discuss your outlook for the category at least here in the U.S? How the consumers are responding to the category offerings, and then spending and what your competition is doing out there, are there introducing more products or are they increasing marketing support, any color would be appreciated.

[Chris Elshaw:]

Well, the consumer like this category. It continues to perform pretty well in the economic environment. It’s very accessible for consumers, there is being an explosion in the nail category for example, which is a good example of accessibility of introduced product, the level of competition remains intense. We’ve got no reason to suspect that will change as for forecast in the category, I can’t really forecast, all I can tell you is it continues to be robust.

[Reza Vahabzadeh:]

And you may have alluded to this before, but retailer inventory levels are in what shape?

[Steven Berns:]

Well, they continue to be constantly monitored by the retailer and by us, you know there is no reduction in their retention to them, they continue to pay close attention to them, so do we because it’s very important for us that we have the right inventory at point of sale, but we haven’t called out any impact from inventory in this quarter.

[Reza Vahabzadeh:]

I see, and I’m sorry, you mentioned the insurance recovery in this quarter, I guess I missed it?

[Steven Berns:]

Yeah, as you may have recalled in the fourth quarter of last year, and during last year as a result of the fire that we had hit our Venezuela facility in June of 2011. We have received insurance proceeds and those insurance proceeds are – back in February.

[Reza Vahabzadeh:]

Right. And then as far as working capital in the first quarter as you highlighted you had to make payments on the multi-year insurance program. So for the year, our working capital still washed out or because of this use?

[Steven Berns:]

Well, I would look at the first quarter and draw an conclusion about the balance of the year, we don’t, we haven’t given guidance on the full year working capital consistent with our guidance on cash flow, we’ve talked about the absolute level of certain items. As I indicated in my prepared remarks, and as we’ve constantly done, a very strong focus on maintaining a low level of investment in working capital, but yet supporting the business appropriately. So making sure we have the right inventory and the right level of our accounts receivable and accounts payable management. Once again, it’s going to vary from quarter to quarter just as a function of the business activities that we engage in.

[Reza Vahabzadeh:]

I see and so on mix, when you talked about the mix being negative for you on the gross margin line this quarter, was that because of the beauty tools or was that because of Almay or something else?

[Alan Ennis:]

On a brand by brand basis, we don’t specifically discuss the impact on our margin, really, we’re talking about is, with our portfolio of products in various retailers across the globe and there are different price points and different cost associated with those products getting to the channel with the componentry packaging and the formulation of those products, and so there’s a number of factors, which go into the gross margin, none of which were if you would add a line with what we would typically experience in any period in the first quarter.

[Reza Vahabzadeh:]

Thank you.

[Operator:]

We’ll go next to Connie Maneaty with BMO Capital.

[Connie Maneaty:]

Hi, good morning.

[Alan Ennis:]

Good morning, Connie.

[Connie Maneaty:]

Hey, I am wondering if you can comment on whether any the new entrance into the category had an impact on its positioning and attraction to consumer?

[Alan Ennis:]

Well, I would say that category continues to be extremely attractive to the consumer, Connie. As you know, the consumer likes the variety, they are very motivated by new products coming in, and there’s always in this category a lot of people trying to end with new brands and it’s particularly new thing over the years, people have done that. But I don’t see any change in the attractiveness of the category to the consumer, they are very attracted to it.

[Connie Maneaty:]

Okay. And then just anecdotally because the rest of my questions have really being answered. And anecdotally maybe 25 or 30 drug stores that I have been looking at in the nail category, I’ve never got selection of the Longwear ColorStay nail. Are you getting the right kind of distribution?

[Alan Ennis:]

Yeah, you should send the list for me, we need to fix that. We’re having a very good launch of ColorStay Nail Enamel actually. We’re very happy with this performance; performing very well in the marketplace. So reach a very positive on it.

[Chris Elshaw:]

The rest timing, kind reset in the U.S is somewhere between Wal-Mart is to be the first to start in January timeframe and reset probably finished, around late April. And so depending when you went to the drugstore, and depending which drugstore it was, the reset may not been completed, but it’s in full distribution throughout the U.S and throughout our major markets outside the US now.

[Connie Maneaty:]

Okay, that’s all I had.

[Chris Elshaw:]

Thanks, Connie.

[Operator:]

And we’ll go next to Jeff Kobylarz with Stone Harbor Investments.

[Steven Berns:]

Good morning, Jeff.

[Jeff Kobylarz:]

Good morning. Just curious about what you mentioned you said little bit earlier about the explosion in nails, and what’s driving that, and are you participating in that?

[Steven Berns:]

So, yes, well, the answer to the second be first. Yes, we’re participating very strongly. Revlon was founded on nail color, that was the first products that the company had back in 1932.So we have a strong heritage in nail, we have very strong formulations, and we have a good brand position on nail. And we have a very strong pipeline of new products coming. You’ve started to see some of them in the marketplace and you’ll be seeing a lot more. In terms of nail itself as a category, yes, it has exploded and it’s a trend of people accessorizing more. As compared to some other product categories, there is no so much concerned about getting it wrong.

[Chris Elshaw:]

Yeah, the people who don’t wear a lot of foundation or worried about how their liquid lipstick, but everybody finds nail very accessible. So that as you see a number of different segments emerging. So you have call color which we have a strong position in. We innovated with sensitive nail, which is in a good performance for us. We launched our top speed quick Dry Nail Enamel, which dries in less than 60 seconds, enables people to change their nail color very frequently. And of course, we’ve just launched our gel-like s Long Wear nail, and gel nail is a big trend in the southerns, but as anyone would tell you, it’s quite expensive. And secondly, it’s very difficult to remove. So our gel nail, which we referred to earlier the ColorStay gel nail is going to be very successful for us. The other thing I would mention is of course, we made the acquisition last year of Sinful Nail Color. Sinful Nail Color is also performing extremely well, and we’re very pleased with that.

[Jeff Kobylarz:]

Can you give any general comments about your outlook for cost this year? Just as far as – as far out as you look to, did they look stable with last year or is there any pressure from the written off prices over last 12 months?

[Chris Elshaw:]

Well, a couple of things, Jeff. I mean, first of all, you know what we’re focused primarily on is driving profitable growth, and so you know there is – in this marketplace, it’s very easy to drive the top line but you lose a lot of money if you do it the wrong way. And so we’re making sure that we’re growing and making investment choices that have a positive return for us, that’s the first thing. Secondly, as it relates to the commodity prices like everybody in the space, we experience pressures from changes in commodity prices like oil as you mentioned, but we’ve been effectively able to do over the last number of years is find ways to offset those cost pressures such that we maintain, as we have from the last couple of years of very competitive operating income margin. I would tell you that you know quarter-to-quarter you’re going to see shift in the gross margin as Steven talked about and even in the OI margins. But over time, we believe that we have the right structure and processes in place to maintain the highly effective and highly competitive operating margins.

[Jeff Kobylarz:]

Okay, thank you. And then, can you comment about the line reviews that occurred this year in the shop space? Is there any change you can comment about for this year versus last year?

[Steven Berns:]

Yeah. We’re seeing no significant change in space this year.

[Jeff Kobylarz:]

All right. And then, can you give any guidance for cash taxes this year?

[Steven Berns:]

We’re given cash taxes guidance previously and that is $20 million are expected in 2012, which is consistent with our guidance that we gave back in February.

[Jeff Kobylarz:]

All right. So I missed that. Okay, thanks very much.

[Alan Ennis:]

Thank you, Jeff.

[Operator:]

And at this time, there are no further questions. Mr. Elise, I’ll turn the call back to you, sir, for any additional or closing remarks.

[Elise Garofalo:]

Thank you very much, and thanks for joining our call this morning. We look forward to speaking with you when we report our second quarter results later this year. Thank you.

[Operator:]

And ladies and gentlemen, that does conclude today’s presentation. We thank you for your participation.