Q3 2020 Revlon Inc Earnings Call
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Please standby your program is about to begin.
Good day, everyone. My name is David and I will be your conference operator today at this time I'd like to welcome everyone to the Revlon third quarter 2020 earnings conference call all participant lines have been play.
In a listen only mode to prevent any background noise after the <unk>.
Speakers remarks, there will be a question and answer session. If you would like to ask a question at that time. Please press the star and one on your telephone keypad. If you should need operator assistance. Please press the star and zero.
Thank you and I will now turn the call over to carry Robinson executive.
Vice President and.
General Counsel. Please go ahead.
Thank you operator good.
Afternoon, everyone and thank you for joining the call early.
Earlier today the company released its financial results for the quarter ended September 32020, and.
If you have not already received a copy of the earnings release.
He can be obtained on the company's website at Revlon Inc. Dot com.
On the call. This afternoon, Debbie Perlman, our president and Chief Executive Officer, Sir.
Sure Jim Zadra, our Chief operating Officer, and Victoria, Dolan, our Chief Financial Officer.
The discussion today might include forward looking.
Statements that are based on current expectations and are provided pursuant to the private Securities Litigation Reform Act of 1995 info.
Information on factors that could affect actual results and cause them to differ materially from such forward looking statements is set forth in the Companys SEC filings, including its Q3 2000.
20 form 10-Q.
The company undertakes no obligation to publicly update any forward looking statements except for the companys obligations under the U.S. Federal Securities laws.
Remarks today will include a discussion of certain GAAP and non-GAAP results can.
Consistent with past reporting practices now.
GAAP results exclude certain non operating items that are not directly attributable to the company's underlying operating performance.
These adjusted measures are defined in the earnings release and are also reconciled in the financial tables at the end of the release.
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 David.
Thank you Carrie.
Good afternoon, everyone and thank you for joining us.
As a crowd of Iris remains a serious health concern in many places around the world I hope everyone listening to today's call.
Thanks safe and healthy.
In the third quarter 2020, our as reported net sales were $477 million, a decline of $120 million or 20% compared to the third quarter of 2019.
We estimate that COVID-19 contributed.
Approximately $119 million, the net sales decline with all segments and regions negatively impacted.
Therefore, excluding this COVID-19 impact our third quarter 2020, net sales were essentially flat compared to third quarter 2019.
Our adjusted EBITDA in the third quarter of 2020 with $55 million, a decline of $14 million versus prior year period.
This decline of approximately 20% is in line with our net sales decline and our adjusted EBITDA margin has remained steady at approximately 11.4.
Percent.
While COVID-19 continues to have a significant impact on both the broader beauty industry and on our business I am pleased that our profitability remained steady and that our third quarter 2020, net sales decline of 20% reflects a sequential improvement in our topline as camping.
Pair to the second quarter 2020, net sales decline that was just short of 40%.
Victoria will provide additional details as he reviews, our third quarter financial performance.
In the third quarter, the company continued to adapt strategies and tactics to align with our consumers changing behavior.
Earlier, resulting from Covidien team.
Most notable is the continued shift to E commerce.
As mentioned in previous earnings calls ecommerce has been a key strategic pillar for the company and we continue to see the dramatic acceleration of this channel.
Building on our momentum from the second quarter.
We continue to invest behind our ecommerce business, resulting in a 13% growth globally during the third quarter.
This growth is slightly lower than we have seen in previous quarters due to onetime events in the age of the mass channel and third quarter 2019, including the E Commerce launch of Revlon color cosmetics into China.
Excluding our mass brands in Asia, our total ecommerce net sales would have grown just under 40% relative to the prior year quarter.
Our E Commerce channel now represents approximately 12% of our total net sales an increase from approximately 9% in the third quarter of 2019.
Year to date.
20 E Commerce represents approximately 14% of our net sales already exceeding our expectations for the year.
And then third quarter E Commerce grew across our own sites are pure play partners as well as our retail dot com accounts.
Our North America region continues to show strength with Triple.
20 digit growth in the third quarter versus prior year.
Our Elizabeth Arden Dot Com site continues to perform well with growth in the third quarter of approximately 60% driven by continued strength of our skin care and especially our highly ironic asset capsules, the latest launch and our ceremony franchise.
Our other T E commerce regions continue to grow double digits, including in EMEA and in Asia with our prestige brands.
Additionally, we continue to see consumer shifting towards personal care brands and products.
We are well positioned to capture the shift in behavior, given the breadth of our brand and product portfolio.
We saw strong growth in our key personal care brands during the third quarter.
Notably our multicultural brands led by Creme of nature grew strong double digits and we also experienced growth in our Revlon beauty tools to tax and Mitchum brands.
Revlon also continues to maximize our.
Hand, cleansing and sanitizing products across our two tax and Revlon professional brands.
Additionally, in the third quarter, we expanded our had genex brand in EMEA to launch Hi, Jun Derma, a collection of hand and body washes that offers moisturizing care benefits as well as protection from bacteria, which is assessed.
The only relevant today.
I know many of you have been closely following the senior notes debt exchange offer and have likely seen the news that we intend to successfully close this exchange tomorrow.
I'm very pleased with this outcome, which provides us with the additional runway needed to enter 2021 fully focused.
On executing on our business plans and strategies.
We will continue to invest in the brands in markets, where we have scale to drive our E commerce business as well as continue to work to optimize our capital structure.
Of course, the hard work is not over and there is still uncertainty ahead due to covert 90.
Session, but I'm confident that with the successful exchange offer essentially behind us.
Our strategic plan, well underway and our portfolio of iconic brands there remains a bright future ahead for Revlon.
And now I will turn it over to Victoria to walk you through the details of the third quarter 2020 results.
Thanks.
Thank you Debbie and good afternoon to everyone on the call.
Let me first detail our third quarter 2020 results.
Third quarter as reported net sales were $477 million compared to 597 million during the prior year period, a decline of 20%.
Reported net sales includes approximately $119 million of estimated negative impacts associated with the COVID-19 pandemic.
Excluding the COVID-19 impacts net sales were essentially flat to the prior year period.
Third quarter operating loss was $10 million compared.
It was $17 million of operating income during the prior year period.
The operating loss was driven primarily by the lower net sales described previously and lower gross profit margin driven in part by the adverse effects of the COVID-19 pandemic, including the negative impact from sales mix and higher.
Higher manufacturing overhead absorption costs.
These negative impacts were partially offset by $55 million and lower selling general and administrative expenses.
Driven in part by cost reductions associated with the company's restructuring programs and additional actions specifically implemented to mitigate.
To an adverse impact of COVID-19 on the company's operating results.
Third quarter as reported net loss of $45 million was essentially unchanged versus prior year period, driven by a 31 million dollar gain on the early extinguishment of the 5.75% senior notes.
The result of the company's repurchase and cancellation of approximately $44 million in principal face amount of the 5.75% senior notes during the quarter.
As well as a 17 million dollar favorable foreign currency impact versus the prior year period.
These impacts were offset by the higher operating loss in the.
The quarter and a $19 million higher interest expense.
Finally, adjusted EBITDA was $55 million in the third quarter of 2020 compared to $68 million during the prior year period, driven primarily by lower net sales and lower adjusted gross profit margin attributed.
To the COVID-19 pandemic and product mix, partially offset by lower SGN expenses.
Next I would like to turn to our segment results.
Red one segment net sales in the third quarter of 2020 were $166 million, representing a 24% decrease on a comp.
There's been currency basis.
The segment's lower net sales were driven primarily by Revlon color cosmetics as well as lower international net sales of Revlon branded professional products due primarily to the ongoing effects of the COVID-19 pandemic on the mass retail channel and on Salon activity.
City.
This decrease was partially offset by higher net sales of Revlon branded beauty tools and hair color products in North America.
Red one segment profit increased to $14 million from $7 million in the prior year period, driven primarily by the segments lower brand support partially offset by lower net sales.
And lower gross profit margin.
Elizabeth Arden net sales were $106 million in the third quarter, representing a 15% decrease on a constant currency basis.
The decline was mainly driven by certain Elizabeth Arden brand and skincare and fragrance, whose products due in part to the continuing.
Ill effects of cobot, 19, driving lower foot traffic at department stores and travel retail outlets, partially offset by higher net sales of surmised skin care products in North America as well as growth in the E Commerce channel.
Elizabeth Arden segment profit was $3 million compared to $13 million in the.
I remember your period, primarily due to the segment's lower net sales and lower gross profit margin, partially offset by lower brand support.
Net sales for our portfolio segment were $100 million in the third quarter of 2020, a decrease of 16% on a constant currency basis, driven primarily by lower net sales.
Sales of Almay color cosmetics, CND nail products, an American crews men grooming products, primarily in North America due in part to the continuing effects of COVID-19 on the mass retail channel and salons, partially offset by higher net sales of creme of nature hair care products and Mitchum antiperspirant deal.
Currency, primarily in North America.
Portfolio segment profit was $12 million, a decrease of $2 million versus the prior year period, driven by the segments lower net sales and lower gross profit margin, partially offset by lower as June a and brand support expenses.
Finally, our fragrances segment.
Sales were $105 million in the third quarter of 2020, representing a 24% decrease on a constant currency basis.
The segment's lower net sales were driven primarily by the continuing impacts from COVID-19, especially in the prestige channel, resulting in decreased foot traffic.
Fragrances segment profit.
But in the third quarter of 2020 was $25 million, a $9 million decrease compared to the prior year period, driven by the segments lower net sales and lower gross profit margin, partially offset by lower SDMA and brand support expenses.
Turning to liquidity.
Net cash used in operating.
No activities during the first nine months of 2020 was $257 million compared to $167 million used in the prior year period.
The increase in cash usage was driven primarily by the COVID-19 related lower net sales as well as cash expenses associated with our 20 Twond.
On T. restructuring program.
Free cash flows used in the first nine months of 2020 was $264 million compared to 100, and so $87 million used in the prior year period.
The increase in free cash flow usage was driven by the higher operating cash flow usage due to the COVID-19 related impacts.
Yes on the business.
Partially offset by lower capital expenditures.
During the first three quarters of 2020, we spent $7 million in capital expenditures and $17 million on permanent displays.
Additionally, we have two tranches of our capital structure that mature next year, namely.
Our 2018 foreign asset backed term loan maturing in July 2021, and our 2016 us revolving credit facility maturing in September 21.
We have already initiated discussions to refinance these facilities and we are confident that we will complete these recent refinancings.
Well in advance of their respective maturities.
Turning now to our 5.75% senior notes exchange offer.
Upon the expiration of the exchange offer approximately $236 million aggregate principal amount of 5.75% senior notes or approximately 68.8.
Well cent of the principal amount outstanding have been validly tendered into the exchange offer and not withdrawn.
All conditions precedent to the consummation of the exchange offer have been satisfied including the minimum liquidity requirement of $175 million and settlement is expected to occur Tomorrow November 13th.
I'll now hand, the call over to Debbie for closing comments.
Thank you Victoria in closing in the third quarter, we continue to navigate the uncertainties of the current COVID-19 environment.
We remain focused on executing on our business strategies, including our ecommerce acceleration as well as progress.
Yes against our 2020 restructuring program objective.
With that we will now open the call up for questions.
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I'm once again, it is star and want to ask a question today.
And we'll take our first question from Carla Casella with Jpmorgan. Please go ahead. Your line is open.
Hi, I guess for leisure there Andrew stand the exchange and vaccine can you give us what the cash impact will be as the exchange and does this mean that their 2021 note that we're not tendered will be paid down at par.
Hey, Carlo this is Victoria. Thank you. Thank you very much.
Much.
Yes, all of the remaining notes will be will be redeemed and we will pay them at at par. So we've looked at the at the total value of what that.
Exchange consideration is an approximately including all fees because we have fees that we paid.
As well, including fees its about a 100 and somewhere around a $185 million to $190 million, but.
But that does include team.
Okay, Great and then when you look at the business coming and coming in and out and Choppiness around coated.
How does the number of retail doors that you're selling through.
True change dramatically.
I guess for any of the businesses, even though the revlon or the Elizabeth Arden.
Domestic internationally, if you could just talk about your customer doors. When did those have any that have closed permanently that'd be helpful.
Hi, Carlos Debbie prominent thank you for the question.
I hope that you are doing well.
So as you said you know COVID-19 has had a significant impact on our business.
You mentioned that the impact in the quarter was about $119 million across all segments in all regions.
We just see that.
You know with frankly, the closing the shutdown of market.
The shutdown of travel retail that did have a big impact on our international markets in the third quarter frankly.
Frankly, as well as lower foot traffic and prestige doors and in mass storage, frankly globally, where we saw less.
Have a impact and frankly growth is in the ecommerce channel.
But to your question with regards to store closures, what we're really seeing or these temporary shutdowns.
Across all of the segments, so prestige pro in mass with depending on the market some reopening faster than others and then others.
Frankly have reopened like pro for the professional salons and then in some areas are shutting down again so.
So, it's really sort of been watching markets and segments.
And managing through the openings and closings.
With regards to permit in closing I would say at this point.
It hasn't had a major impact on our business. Thank you.
Great. Thank you.
[noise] and there are no further questions on the line at this time I'll turn the program back to Debbie Perlman for closing remarks.
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Thank you seeing no additional question let.
Let me say, thank you to all who joined the call today and a special know to our team members around the Revlon World who are listening and.
I truly appreciate all of your significant effort.
Especially during the third quarter as the company dealt with the continued impact of Cove it on the business and success.
Definitely addressed its near term debt maturity.
Thank you for all the efforts that you make every single day and stay safe. Thank you.
This does conclude today's Revlons third quarter 2020 earnings call. Please disconnect. Your line at this time and have a wonderful day.
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