Q4 2019 Earnings Call
Hello, and welcome to the Revlon fourth quarter 2019 earnings call. My name is my hand, and I'll be your coordinator for today's event. Please note that for the duration of the cool your lines will be on this anomaly. However, you will have deal.
Opportunities to ask questions later on the cold this can be done by pressing star Wars on your telephone keypad logistical question. If you require assistance at any point. Please press star Zero and you get connected it's an operator I'll now hand, you over to her Eric Warren to begin today's conference. Thank you.
And your small and good morning, everyone and thanks for joining the call.
Yesterday, the company announced three important business update will be discussing on this call.
Berkman open you up on 2020 restructuring program designed to streamline our organization and generate significant cost reductions.
Second secured a commitment to refinance or 2021 senior notes.
2090 term loan.
Well provide additional funding to the company.
Well, we announced the preliminary unaudited fourth quarter and full year 2019 financial results.
Not already received a copy of the media related.
A copy of the meetings on the company's website <unk> dot com.
On the call. This morning are gonna be Pullmantur, President and Chief Executive Officer.
Were you able to grow our chief operating officer, and Victoria, Dolan or Chief Financial Officer.
The discussion today might include forward looking statements that are based on current expectation everybody pursuant to the private Securities Litigation Reform Act of 1995.
Information on factors that could affect actual results.
And the differ materially from such forward looking statements as set forth in the company a few people filing.
Including its 2019 form 10-K, which the company expects to file with the yet you see no later than March 12, 20 Twond.
The company undertakes no obligation to publicly update any forward looking statements except for the company's obligations under the U.S. Federal Securities Law.
Remarks today will include a discussion a certain GAAP and non-GAAP results.
This is gonna toss reporting practices non-GAAP results exclude certain non operating items not directly attributable to the company underlying operating performance.
You can jump in other than to find New Orleans and also reconciled in the financial tables at the end of the really.
Please also note that certain amount provided throughout this call have been round.
The goal today should not be copied or recorded without we'll turn the call over today.
Thank you Eric and good morning, everyone on the call.
Let me begin by saying that 2020 will continue to be a year a significant transformation revlon.
Yesterday, we announced two important steps forward in strengthening our business and foundation for growth.
First we announced a new Revlon 2020 restructuring program building on the successful 2018 optimization process.
Hi, which we are able to take out $95 million a call in 2019.
The goals of our new 2020 programming, so building a stronger global business operations.
Enhancing our cost efficiencies and improving our operating margin continue accelerating the growth in our operating income and adjusted EBITDA that we saw in 2000 and everything.
We expect to pencil deliver between 200 million and $230 million, an annualized cost production by the end of 2022.
Earlier this year, we hired Sergio Potrero as our new CFO to lead this effort.
He has hit the ground running thinking at 360 degree view of our operation.
Second we also executed an agreement with Jefferies.
Will enable us to refinance all $500 million of our 2021 senior notes.
And all of our 200 million dollar.
2019 term loan, which will address the company near term maturities.
I think than our capital structure and provide additional funding for the business.
Well its Victoria answered you will speak more about these two items later in the call.
Yesterday, we also released our preliminary fourth quarter and 2019 full year results.
Well, we continue to see momentum in our strategic growth areas 2019 was a challenging year for our company and our industry, particularly in North America.
Reported fourth quarter net sales declined 6%, a 5% on a constant currency basis.
Driven primarily by declines in the fragrances and Revlon segments, partially offset by net sales growth in the Elizabeth Arden segment.
Reported net sales include the impact of an ongoing issue of excessive coupon redemption, which is currently estimated at $13 million and remains in dispute with a single U.S. mass retailers.
Excluding this impact net sales on a constant currency basis declined 3%.
Despite a decline in net sales our fourth quarter net income improved approximately $96 million driven by strong operating income rose and improvement in our effective tax rate.
For full year 2019, operating income improved $146 million, an adjusted EBITDA increased $28 million or 12% versus 2018, primarily as a result of improved business operations and the cost reductions deliver.
By our 2018 optimization program.
We had been relentlessly focused on running our business smarter and driving cost reductions and greater efficiency throughout the organization.
As I said earlier these efforts will only accelerate this year, but the launch of the Revlon 2020 restructuring program and its strength in capital structure as a result at the refinancing commitment.
Let's turn to some of our recent business highlights for full year 2019.
In the U.S. mass channel Revlon, and now make color cosmetics consumption, both outpaced the broader category as did revlon hair color.
Demonstrating that our brands continue to resonate with our consumers.
Well on remains the leader in the lift category, the leader and long hair color cosmetics and Revlon Colorsilk for me as a number one hair color products.
Our leading position in Libya in large part due to our revlon due for lustrous and ultra HD franchises.
The 2019 relaunch of Revlon Super lunch with backlog catapulted revlon to grab the leading position in the lip gloss subcategories.
In 2019, we launched two products within the ultra HD franchise, Litmos and vital that Polish both of which had been very successful.
Revlon also gained share in that Brad and I shall category in 2019 in large part due to our proud creator and look forward I pallet launches.
We see the strength of the Revlon brand outside the U.S. as well.
In 2019, Revlon color cosmetics constant currency adjusted net sales in the key regions of Australia.
Argentina.
Mexico, New Zealand, Spain, South Africa, as well as in global travel retail.
Elizabeth Arden remains one of our strongest growth driver and has experienced net sales growth and each quarter. Since we acquired the brand in 2016.
Skincare continues to be successful category for the Elizabeth Arden brands led by our franchise is up provide and semis, which both grew double digits in 2019 over the prior year.
Yeah, Elizabeth Arden, Sarah My franchise as the leader in Amano does category with growth driven by our classic there might advance capsule.
Our award winning retinal capsules, and our newest product vitamin C, which launched in 2019.
Fragrances is also an important category under Elizabeth Arden and in 2019, he focused on growing our key pillars, including our classic Green tea franchise as well as like team both of which posted strong growth in 2000 and I've seen.
You highlighted in our portfolio segment I would like to address our American crew and Mitchell.
American crew continues to be the leading men's grooming brand in the global professional channel.
Globally American crew net sales rose, 4% on a constant currency basis in 2019.
Driven impart by our iconic styling props and our Mac played pop the latest introduction to the collection.
Turning to Mitcham. This brand continues to perform extremely well and its key international regions of in UK, and South Africa, where Mitchem isn't number four player and Anik first French deodorants.
And 2019 retail sales outpaced the product category.
And the women's 80 deal category in the UK Mitchem moved up one ranking to catch the number three position in 2019.
We continue driving our digital transformation with ecommerce penetration approaching 10%.
Net sales and year over year growth just short of 50%.
In the fourth quarter of 2019 or ecommerce penetration was approximately 14% of net sales versus approximately 9% in the fourth quarter.
18.
Globally, our Elizabeth Arden Dotcom business grew 37% in 2019, and we continued to expand our international presence with that business.
We're very focused on continuing our momentum and many territories and channels, including Asia.
Of course, we are monitoring the increasingly broad reach a corona virus.
Both on our business and with regard to the health and safety of our employees.
We continue to work to mitigate the impact on our business.
We'll have more to say during our first quarter 2020 earnings call.
We also continued to work with Goldman Sachs on the strategic alternatives process, which remains focused on exploring potential options for our portfolio and regional brands.
Now I'd like to turn the call over just Sergio to discuss our new Revlon 2020 restructuring program.
Thank you Debbie.
I will students who joined the rebel gene murders is either.
My short time here, so far I have seen firsthand the incredible work Revlon girls everyday to deliver the best frogs and services he brings us.
The foundation of that business is strong.
That's all for what the changes we are embarking on there's parts of the rebels just doesn't swenson restructuring program I never very golf.
Future.
In developing our restructuring program, we took a step back and look at the business.
It stands should be.
Paul we serve or go to murder throughout the supply chain and how we work internally in order to streamline our bid.
Results you can you just got to areas, where we can align and streamline team as well with reporting structures.
As a result of the researchers.
We expect to de lever in the range of approximately $200 million through $230 million off annualized cost reductions by the end books, you called them for any true.
Your interest doldrums, Wendy we expect to realize approximately $105 million to $116 million on your cost reduction.
You need financing that right once installed and spent the restructuring program the company expects to recognize.
<unk> was approximately $55 million to $65 billion of social reach tax restructuring and related charge.
The primary employee related costs, such as severance retention and the other one structural termination benefits.
In addition, the opening I expect restructuring charges in the range of $65 billion to $75 million tribute charges and they seem to go through thousands rewards for 2003 true.
So what would you expect that substantially all of these restructuring charges will be paid in Josh was approximately $55 million to $65 of disposal.
This is expected to be savings yourselves with.
Ross would be $400 $45 million exigent, Dave you answered solving for anyone.
The balance Expresser decisions result was that a true.
The rivals results as wed be restructuring Broadwell is designed to reduce our selling general and others that youve expense.
Also schools.
Well, I mean, <unk> gross profits and adjusted EBITDA and maximize.
Cash flow and.
The broad running foods Rightsizing the organization.
Arrangers War infusions workflows and process.
We estimate that the process.
Superset of the $200 million to $230 million annualized cost reductions.
You realized from had constant absent a growing interest both in France.
No I read vendor goal to restore yes.
It's good for refinancing commitments and preliminary fourth quarter results.
Thank you Sergio and good morning, everyone on the call.
The refinancing agreement reached with Jefferies will provide up to $850 million in new financings that will be used to repay all of the 5.75% senior notes maturing in 2021 $500 million outstanding.
We pay the 2019 term loans $200 million outstanding.
And provide additional funding for the company.
The company plans to close the refinancing transaction in the second quarter 2020, and additional details can be found in the form 8-K filed with the FCC yesterday.
Turning now to our fourth quarter 2019 results.
Fourth quarter, net sales were $699 million compared to $742 million during the prior year period.
A decline of 6%.
On a constant currency basis net sales decreased 5% driven primarily by net sales declined in the fragrances and revlons segments.
Mostly offset by the net sales growth from the Elizabeth Arden segment.
Fourth quarter operating income improved to $77 million.
Compared to $32 million during the prior year period.
The higher operating income was driven primarily by $30 million in lower selling general and administrative expenses due to the 2018 optimization program.
And the benefit from nonrecurring prior year accelerated amortization related to pure rice bran intangible assets.
A $27 million gain on the divestiture of two regional brands as well as a benefit from a prior year nonrecurring $18 million goodwill impairment charge, partially offset by lower gross profit margin.
Fourth quarter net income improved to $26 million versus a $70 million net loss in the prior year period.
Driven primarily by the 45 million dollar improvement in operating income described previously.
42 million dollar improvement in the benefit from income taxes.
On a 16 million dollar favorable foreign currency impact versus the prior year period, partially offset by higher interest expense.
Finally, adjusted EBITDA was $112 million in the fourth quarter of 2019 compared to $125 million during the prior year period.
Excluding the impact of tariffs and foreign exchange adjusted EBITDA decreased approximately 5% versus prior year period.
Next I would like to turn to our segment results.
Revlon segment net sales in the fourth quarter of 2019 for $243 million, representing a 6% decrease on a constant currency basis.
Excluding the impact of the ongoing issue of excessive coupon redemptions, which is currently estimated at $13 million.
Segment net sales on a constant currency basis declined 1%.
The decrease in an as reported net sales was driven primarily by lower net sales of Revlon color cosmetics.
Due to increased promotion malady, primarily in North America.
Lower net sales of Revlon colorsilk hair care due to planned efforts to manage trade inventory levels.
As well as overall category declines.
Rob Rob long segment profit decreased to $43 million driven by the segments lower net sales and lower gross profit margin.
Elizabeth Arden net sales were $168 million, representing a 9% increase on a constant currency basis.
This improvement was mainly driven by higher net sales of Elizabeth Arden skin care products, including their alive and footballers principally in our international territories.
Elizabeth Arden segment profit was $21 million, a decrease of $2 million versus the prior year period, primarily due to the segments higher brand support which increased versus the prior year, both in absolute dollars and as a percentage of net sales, partially offset by a higher net sales.
Net sales for our portfolio segment were $134 million in the fourth quarter of 2019, a decrease of 6% on a constant currency basis.
This decrease was primarily driven by lower that sales of Mitchell's branded products due to cycling against the prior year refilling of retailer inventories after the ERP related declines in customer service levels.
Partially offset by a higher net sales of American crew and creme of nature products.
Portfolio segment profit was $20 million, an increase of $6 million versus the prior year period.
Driven by lower brand support and distribution expenses, partially offset by this segment's low enough sales.
Finally, net sales of our fragrances segment were 150 million $55 million in the fourth quarter of 2019, representing a 13% decrease on a constant currency basis.
This decline was driven primarily by the overall softness in the U.S. mass fragrance category as well as the segments lower net sales of Juicy couture and Elizabeth Taylor branded fragrances.
It wouldn't parts to door closures and timing of innovation, partially offset by higher net sales of Christina Aguilera branded fragrances.
Fragrances segment profit in the fourth quarter of 2019 or $29 million, a $6 million decrease compared to the prior year period.
Primarily as a result of lower segment net sales and lower gross profit margins, partially offset by lower brand support and distribution costs.
Turning to liquidity cash used in operating activities. During 2019 was $68 million or an improvement of $103 million versus the prior year period, primarily attributed to the lower net loss and favorable working capital changes as well as the one time costs occurred in the 20.
18 period related to the remediation of the ERP implementation.
Free cash flow used in 2019 was $97 million compared to $228 million used in the prior year period.
The improvement in free cash flow usage was primarily driven by decrease use of cash and operating activities and lower capital expenditures.
During 2019, we spent $29 million and capital expenditures and $46 million on permanent displays.
And finally as of December 31st the company had approximately $279 million of available liquidity, consisting of $104 million of unrestricted cash and cash equivalents.
$168 million in available borrowing capacity under the revolving credit facility.
$30 million and available borrowing capacity under the 2019 senior line of credit, let's flow of $13 million.
I'll now hand, the call over to Debbie for closing comments.
Thank you Sergio and Victoria.
With the new financing commitments to improve our capital structure and extend debt maturities as well as our efforts to build a more efficient and streamline business.
Im confident in our ability to continue to strengthen the relevance of our brands around the world and significantly improve our margins and drive increases in our cash generation and profitability.
[laughter] now if you would like to ask a question. Please press star one on your telephone keypad and short on your line remains muted locally all them from two when trust your question and I saw one.
So first question comes from the line all Carl Lukach show off from JP Morgan. Please go ahead.
Hi, Good morning. This is share on for Carla can you talk more about which brands are included in this specified brands for the senior term loan and if you can give any pricing details on the term loan and then I've a follow up.
So thank you for the question on the term loan and before I answer. The question why do you want to take a step back and reiterate what Debbie said, we think that is $850 million. A commitment is a really great deal for us and an important step forward for the business. We think it shows signs of confidence and.
The business and we're looking forward to closing the transaction over the next couple of months and we want to remind you that it's Doug.
Enhance our capital structure.
By addressing the near term maturities by extending our maturities and providing us additional liquidity in terms of specifics on the transaction at this point I would refer you to the 8-K.
That's as far as we're going to go at this point given that it has not closed and we do expect that it will close in the second quarter.
Okay. Thank you are you.
Help us think about 249 million of direct contribution from the specified brands and if that includes Elizabeth Arden or American crew.
I just things that I would refer you back to the 8-K and that's the information that we're comfortable disclosing at this point in time.
Okay. Thank you that's all.
The next question comes from the line off when you lose your from Bank of America. Please go ahead.
Good morning.
On the new 2020 restructuring program. When you think about those $200 million to $230 million of savings how much of that do you expect to flow through to the bottom line and how much will be reinvested and some other activities.
And thank you for the question.
Justin.
Good Okay, that's grown wont be.
Children's Lindsay restructuring broadloom.
Before we answer for instance.
So this up this program.
When we start that he said very beyond five years false setting up the company Foursix redesigning the organization.
Sure be leaner arrangements more efficiency.
And serving our clients.
Handwriting rules.
So to do exactly what we do exercise was true.
Bottoms up throughout the organization Luke you floor.
Redundancies overlap so we're doing it is too.
Reduce the cost structure.
Finally, a and therefore drive efficiencies.
The number that we have identified and disease.
To be captured over this year, though slogans wins that you saw this when you too easy that range $200 million from $230 million in any of these facts b.
Matt cost reduction, which means when you look at today's low for 2019 leases additive to that base and it's Matt meaning they are we making these mcdonalds.
All the.
Benefit so the 2018 deviation broad group.
All the cost reductions that were implemented during the course of 2009 being that you have a 12 month.
Benefit future Goldman's Lindsay.
Sure no loss redemptions.
As we progress.
Matt Bobs Congress acts like inflation, a one time benefits, we have the nine fee and you've got your views that range.
$200 million to $230 million.
Yes, yes, yes.
Great. So I think fit to take away. It sounds like is that you did this in order to improve the efficiency of the organization and as part of that you're just going to achieve the savings, but theres no expectation that necessarily you'll start advertising more and use those dollars in that way is that fair.
Oh, no I'm not concerned the goals as long as you that way, but it's moved you in June we diseases, including cash flow you review.
Capacity too, but just one of the good news for sure.
And as a result, you also see and that's what have you had since you do.
As we target margins in the range also 60%.
Gross margin Randy for sense in terms of EBITDA were divorced implementation.
And we think this June.
Solvent rainy June.
So is that so that's how the program was.
Okay. That's helpful. And then last year you guys were hopeful about talking about the impacts of terrorists I don't think the Chinese supply chain is overwhelmingly importance for you guys, but I think it is part of it can you talk about if there're any products that you source in China that you're seeing manufacturing challenges due to.
Plant closures or [noise].
Auctions and capacity there.
So William are you, referring to plant closures due to Corona virus.
I am.
Okay. Thank you very much but a clarification.
So you, obviously first and foremost a we are monitoring the situation to understand the impact to our business as well as frankly, the health and safety of employees.
You know when you think about Corona virus today in our fourth quarter 2019 earnings it did not have an impact.
We do anticipate that it will have an impact in force Corps first quarter, 2020, which will speak about more during that earnings call.
But we are anticipating seeing an impact.
In specific regions, such as Asia, as well as our EMEA region.
With regards to the impact on the supply chain, we monitor that very closely there our factories up and running though a bit slower and we are working with our partners in China to understand delays and mitigate those risks.
Great. Thank you very much I'll pass to others.
Thank you.
And next question comes from the line Mary Jo Bird from Imperial Capital. Please go ahead.
Hi, Good morning, I'm just following up on the cost cuts that you discussed I just wanted to make sure I fully understood. It. So as we look at the savings that are going to be delivered in 2020 that 105 to 115 million.
It sounds like you're saying that that's going to be in net benefit not reinvested necessarily back in the business such that.
Hypothetically if we were to take you know the consolidated EBITDA. This year of 112 could we just have that number.
You know the window five to 115 is that what you mean by that.
Yes, that's correct.
Okay, Great that's very helpful.
Then with regard to the strategic process focused on portfolio and regional brands does that include brands outside the portfolio brands segment in other words could that includes select fragrances.
Till married where we are focused today as we had stated is that the process with Goldman Sachs.
On reviewing our strategic alternatives is ongoing and we are focused on the portfolio and regional brands.
Okay.
Thank you and then with regard to the Elizabeth Arden segments, why was either de age down year over year and could you also talk about.
Shelf space movement year over year, if any with regard to new resets for both Revlon and all me, how we should consider innovation and your innovation strategy in 2020 versus 2019.
Okay. So with regards to the margin on Elizabeth Arden.
We saw impacts of terrorists.
As well as FX as well as some accounting changes that impacted 18 that didn't impact 19, and if you want more detail on betray Ken can jump in and in a minute a with regard to the second part of your question and space changes.
We tend to see normal fluctuations in space.
Throughout the year and this quarter, a with no different with the exception of some loss in space with Revlon beauty tools.
And then with regard to could you just clarify the questions on the innovation for our main other brands.
Yeah, I wonder what's the level of innovation plans this year and anything that you can describe or discuss.
You know even sort of qualitatively with regard to Ah innovation for those.
Two brands.
So I can you just repeat the brands Almay and Elizabeth Arden.
Yes.
Okay.
Thank you for the question so with regard to Al May.
We continue to lean in on the clean positioning.
We launched a very successful biodegradable say snake up or movers in the second half of 2019 and going into 2020, we've launched our skin perfecting foundation as well as our new blush unsustainable packaging Ah. So the launches that we have today are performing very well and resonate.
Moving with the consumers on our main and we'll continue to lean in on the clean positioning with regards to a Elizabeth Arden, we've been focused on growing our skin care franchise is a semi side and providers and we had launches in the second half of 19 on both of those.
And we'll continue to look to launch in 2020.
In the tear my franchise.
And continue to build on the success of the launches we had last year within provides as well as continued to build on the innovation in the pillars of fragrances on Whitey and Green tea.
And then what about Revlon, sorry, what about Revlon.
Yes, so revlon, we had tremendous excitement with regards in the let categories in second half of 19, a with a the gloss as well as on the vinyl, let polished, which we launched and going into first half 20. We're also leaning in again with.
Lets, whereas our shine, which we launched just now as well as our Super Lustrous Matt.
So again, we continue to be very focused on led as a category, where we continue to want to be number one and win.
As well as some launches in ancillary categories, such as Brown, which we I'm sure you've seen has continued to grow share.
Excellent and then one last question how would you describe the fragrance market and the results of the new testers available in flux Drugstores and then how is fresh performing and are there any plans to expand it and further innovation. Thank you.
Thank you. Thank you Mary so with regards to the fragrance market, it's been a challenging year in U.S. mass fragrance, which I'm sure. It's I'm, assuming that the category that you're referring to the market did decline 10% in U.S. masks.
We declined less than the market, but still not a stellar year for us within fragrance. We continue to work with our retail partners in order to be thought leaders in reinvent the experiences in store one of those Reinventions is right now with the U.S. a retailers and we are seeing positive results from.
That initiative with the tester bars.
And with regards to flush we continue to build out our business I'm on E. Commerce, specifically, we continue to see it resonate with the millennials as well as Gen D which represent over.
60% of the consumers within that brand and we continue to see good momentum on our direct to consumer business for that brand. So thank you.
Okay.
The next question comes from the line those Hale Holden from Barclays. Please go ahead.
Hi, good morning, Thanks for taking my call.
I was wondering if you guys are successful selling brown through the strategic review.
My read of eight Ks and use of proceeds properly applied to the Jefferies term loan before would be a part of a 2016 tomorrow. So it's a critical.
So just like with any you know any agreement with as we look at our commitment up to 850 that we just signed with Jefferies or certain circumstances, where it can be reduced in an asset sale would be.
One example, but once we have consummated an asset sale deal we will determine the best of the best way to adjust our capital structure.
Okay. Thank you very much someone has a follow up.
I was wondering.
Yes.
The Capex number you reported for 2019, if there was any reason to think it would be materially different for 2020.
Of course, when it always on it.
So the Capex number okay Capex, we reported for 2019 to 29 million and I think we you will see in the K that for 2020 were showing a range between 25 and 30 fives.
Same far pattern on brand a sluggish similar outcomes plays we spent 46 million NR 2020 ranges 40 to 50.
Thank you very much appreciate the thoughts.
The next question comes from the line those Gena Gianelli from Goldman Sachs. Please go ahead.
Hi, Thanks for taking my questions I have a couple of follow ups and some new ones just with regard to that China supply chain would you be willing or have you disclosed before exactly how much you sourced directly out of China, and then kind of a similar but separate issue the percent of your sales are roughly.
How much you derive from just travel retail in general would be helpful. Thank you.
So on the we have disclosed in the past when we were talking about tariffs that we so resource roughly $100 million and components and products from China a year.
But we do not disco disclosed net sales for as something as specific as travel retail.
Okay. That's helpful.
And then I just wanted to ask on on the new term loan I guess, it's maybe a little and the expiration of the commitment can you talk about just the nature of the June Thirtyth expiration is there a plan b. If you do bump up against that expiration and is there anything in that the maybe tied to the expectation of an asset sale.
I just want to make sure I understand it all correctly. Thank you.
So thank you for the question, but the this is a firm commitment and as we've highlighted earlier, we do expect that we are going to close it in the second quarter. So we anticipate closing it before before June Thirtyth and as I said I think your other question was around the at the asset sale in as I said in my previous answer just like any other trends.
Action to the extent there was an asset sale would be a circumstance, where we could reduce the amount outstanding but we'll have to determine which portion of our capital structure. We would adjust based on the proceeds of a sale.
Okay, and then just a and that one more final and a follow up to Carla's question. It's more just a housekeeping on the direct contribution I think it's only mentioned once in the press release I can't find a definition would you guys be willing to just described her at give provided definition of exactly what those numbers I mean, what a direct the dark contribution.
Dennis.
I think they can do it got gross margin or an EBITDA and maybe I'm just I find it [laughter], but any color would be helpful. I think we just I think we should take that one offline, we can do that as housekeeping separately.
Okay, Great I appreciate it thanks, all the help.
The next question comes from the line of stuff, we seeing from Jefferies. Please go ahead.
Thank you good morning, everyone and welcome Sergio and a follow up question on the cost restructuring program I'm wondering if you can help us with the split between cost of goods and SGN, a how should we think about the balance across the piano.
Yes.
When you look at the.
Expected cost reduction.
Is.
Paul.
95% to 30%.
On cost of goods the balanced wellness unit.
Okay very helpful. And then just to follow up question on an earlier a remark about the shelf space can you talk a little bit about what you're seeing the competitive dynamics within the mass business, particularly in North America. In Europe are you seeing an intensifying competitive landscape or are you finding that you're able to.
Two.
Dictate your positioning and command a bit more.
Business at shelf and I know you mentioned, some couponing and if you could just clarify that a bit but we understand the remediation efforts around the coupons that would be helpful. Thank you.
Yes, sure. So you know with regards to the industry ended up itself within then I'm I'm, assuming you're talking about the math businesses, whether it's in Europe or whether it's in the U.S.
We can continue to see it be very competitive.
You know I think that we look to be competitive we look to continue to bring out innovation that you know excites our customers as well as our consumers.
And continue to be very focused on the strategies and activity that we have in market in both of those regions in order to drive the business forward.
It's where you want to touch on the coupon taught us a little bit about the coupons. So as we said we're currently working through an issue with one of our retailers, where the coupon redemptions in the fourth quarter appear to have been excessively high relative to the sales dollars that we generated in the period its something that is an ongoing issue in that.
We are having ongoing discussions with the retailer on.
Okay. Thank you very much.
The next question comes from the line off Carla Casella from JP Morgan. Please go ahead.
Hi, Thank you so much for taking our follow ups. This era Clark on for Carla you guys gave high level details on sourcing from China. So thank you for that but are you able to share how much of Elizabeth Arden sales are from China, or Hong Kong, and then I have one more follow ups.
So we're not going to quantify or sales with regard to Elizabeth Arden in Hong Kong or in China, you know I would like to note here is that the majority of the business for Elizabeth Arden in China is E Commerce face.
So with regard to risk being in store in bricks and mortar.
We see less of a risks to mitigate there and continue to remain you know observant in terms of the business on E Commerce.
Great. That's helpful. Thank you and then my last question if you're a term loan is down about 10 to 15 points. This morning and quoted in the mid Fiftys now so what do you think the market is missing this morning post numbers and post this financing announcement that it's supposed to show confidence in the business and how do you plan to.
Deal with this term loan in two years.
So thank you for the question, but as you know, we can't control, where the instruments trade trade I can only go back to saying that this is a really important step forward for our business and that we can only continue to operate the business and execute the restructuring plan to create value for all of our today.
Holders and that again, we believe that this is an important step forward for us and the deals with our near term maturities it deals with and extends our maturities and it provides us additional liquidity for us to be able to add that value.
Great. Thank you I appreciate you taking all of our questions.
We have no further questions in the queue for how much color to that most of the coal for any closing remarks.
Thank you.
Seeing no additional questions. Let me say, thank you do all who joined the call today.
20 to 20 will be a year of transformation for our company.
But we have a lot of work ahead of us I am very optimistic about our future. Thank you.
Thank you for a journey in today's call you may now disconnect. Your handsets Whos. Please stay on the line.