Q2 2021 Revlon Inc Earnings Call
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Good morning, My name is Reiland and I'll be your conference operator today at this time I would like to welcome everyone to the Revlon second quarter 2021 earnings conference call.
His obligations under U S Federal Securities laws.
Remarks today and will include a discussion on a certain gap and non-GAAP results consistent with past reporting practices non-GAAP results exclude certain Don operating items that are not directly attributable to the company's underlying operating performance. He's adjusted measures are defined and the earnings release and are also reconcile.
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The call today should not be recorded for copied and with that we'll turn the call over to Debbie.
Thank you Jack good morning, everyone and thank you for joining this morning and cough.
I am very pleased to be sharing a strong second quarter for though which reflect the strength of our brands as well for changing dynamics and the world as markets free open and our consumers re engaged and can read category across all channel.
But for share our second quarter 2021 result, I would like to highlight the progress we're making on our for strategic pillars.
First we are focused on leveraging the strengths of our iconic brands of Revlon and Elizabeth Arden as well as on those brands, where we have scale or unique positioning and the market.
This includes for example, American crew, where we are the number 1 and men styling bran and C. N D where innovation is truly groundbreaking.
Our continued focus on our global brand strategies, including executing and T markets, such as China, and the U S helped to drive double digit net sales growth and a second quarter.
Second or digital transformation remains fundamental to our strategy.
Building on the robust ecommerce growth we deliberate throughout 2020, we are committed to driving growth and this business as well as creating a true omnichannel experience as our consumers have now become much more comfortable shopping across all channel.
For instance are Elizabeth art and consumers are able to engage 1 on 1 with a beauty consultant both at our counters worldwide as well as now live on Elizabeth Arden Dot com.
Third I am very proud of the work our team is doing to create a positive impact on the world around us, including increasing the sustainability of our products and focusing on our diversity equity and inclusion initiative.
Today over 2 thirds of our 2021, new products feature sustainable elements, including the formula and or packaging.
And lastly, we have rapidly moved into implementation of our holistic Revlon global growth accelerator R. R. G. G. A program, where we now have teams around the world engaged to drive this program forward.
As we shared on our last earnings call. This company wide initiative further supports our growth ambitions by focusing on reinvesting and our iconic brands and improving margin strengthening our internal capabilities and building long term value for the company.
Our teams consistent and focus on these for pillars, coupled with continued global recovery from COVID-19, and drove a strong second quarter results, which I will now turn to.
As reported second quarter net sales for $497 million, representing growth of 43% or $150 million vs. Prior year quarter.
Foreign exchange positively impacted our business and a quarter when removing this impact on net sales were $475 million representing growth of 37% or $127 million vs. The second quarter of 2020.
It is notable that all regions and all reporting segments return to growth.
Our adjusted EBITDA $64 million and.
Versus $45 million and prior year quarter growing $19 million or 41%.
Aligning with our strategy, we have been focused on driving efficiencies within our company to enable investment into our brands.
Victoria and we'll take you through the detailed financial results later on the call and I will now share some of the key drivers behind our top line growth.
First as mentioned our focus is on maximizing the global strength of our iconic brand.
And the second quarter all of our segments grew over prior year as many markets continued to reopen and our consumers return to stores counters and so long.
As an example, and EMEA, where salons and many key markets have reopened with 50% to 75% capacity, we were able to successfully launch our newest Revlon professional innovation color sublime and thousands of salons and the region.
Our Revlon segment net sales through over 30% and the second quarter, driven primarily by our Revlon color cosmetics business, where net sales grew over 70% vs. Prior year.
The overall color cosmetics category saw a strong rebound with the U S. Smith mass channel growing 17% and Revlon outpacing the categories with retail sales during over 40 per cent.
It is particularly exciting to see the return to growth and a lift category specifically as Revlon has long been a leader here on.
Our color Saison and clipped color is currently the number 1 lift launch and the U S mass channel and we also have many other new products and the top 10, including our color stay for our fiber filler.
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Color stay light cover foundation, and and Ultra Ht staff nail color.
Net sales and a revlon professional business, which is primarily based and EMEA grew over 65% driven in part by the colors to blond hair color launch I mentioned earlier.
This product wishes begin also uses 60% less plastic and 25% last paper and its packaging.
We have received great feedback from both hairdressers and consumers since launch.
Turning to Elizabeth Arden.
Globally. This segments net sales grew 44% over the prior year quarter R. Skincare fragrances and makeup categories all experienced strong double digit growth with exceptional growth of over 100% and the fragrances category as consumers return to some of our classic brands such as Red door.
And fifth Avenue.
Our newest franchise of White Tee continues to perform well by attracting new consumers to the brand.
China remains the lead market for Elizabeth Arden with a number of important ecommerce events and the second quarter driving growth.
Including Super brand day, and 618, and 1 of our most successful events for the quarter was the launch of <unk> 2.0, which we introduced and the market and China through a Super brand day activation and April.
Turning to our fragrances segment. This is our second consecutive quarter with impressive results and.
Net sales and the second quarter grew 96% as consumers returned to some of our retail channel while all of our key brands experienced explosive growth are juicy couture and John Varvatos brands were truly exceptional with both growing over 200% driven and parked by recent launches of we splash and John Barb.
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There are many other examples of our brands momentum and the market, including our new American crew her Caroline featuring bottles and are made with 80% post consumer recycled materials and formula that are begin and free from silicone as well as share gains and mitchum and key markets of the UK, South Africa and Australia.
But I want to now provide an update on our digital transformation.
We saw modest growth and R E Commerce channel with second quarter, and net sales growing 7% as traditional retail channels reopened relative to prior year.
This channel now represents 15% of our net sales more than double R penetration and 2019.
In addition to continuing to drive on E. Commerce net sales growth. We're also focused on providing a truly omnichannel experience as consumers increasingly demand a seamless shopping journey, regardless of where they shop.
This is most evident and our Elizabeth Arden brands.
And store, we have a suite of interactive digital tools and engage the consumer to find their perfect skin care regimen shade of foundation or fragrant Sims.
Similarly online on Elizabeth Arden Dot Com, we have virtual 1 on 1 beauty consult consultation so the consumer can get the same personalized expert advice, both in store and online.
Turning to our ESG strategy I want to reiterate how proud I am of the work our teams are doing to make a positive impact on our broader world.
And while this has always been a part of our company I continue to evolve our ambitions based on where I believe we can have the largest impact on.
Our internal inclusion and diversity council and participating in the WK Kellogg Foundation, expanding equity program for further drive our internal vision of and inclusive culture, where a diverse workforce thrive.
Externally, our premium and nature brand partners with the United <expletive> College Fund to launch our legacy to leadership scholarship fund to support students currently enrolled at H B C U.
Over 600 students submitted video applications, and we announced our 20 winners last month.
Finally, all of our brands are focused on driving towards our mission to be sustainable forward with over 2 thirds of our 2021, new product incorporating sustainable elements within the formulation and our packaging.
1 recent example is our alma all day, and hence gel eyeliner, which has received the environmental working group that verification steel.
And finally trying to Ah recently announced RGA program for which we began our implementation phase and the second quarter.
This program was put in place to support our growth and ambitions and to build a foundation for Revlon for future.
The program consists of 3 key initiatives implemented and executed over 3 year time horizon, 1 strategic growth, which will drive organic sales focused on our key brands and key markets, particularly the United States and China.
2 operating efficiencies, which will be used to invest and revenue growth as well as increased margin.
And 3 capability building, a critical element to enhance our internal capabilities and upscale employees throughout the organization.
We have already launched and number of internal training focused on increasing efficiency and effectiveness and are continuing to expand these throughout the organization.
We have engaged hundreds of employees to driver RGA program forward and we remain on track to deliver against our expectation.
The timeliness of this program is especially relevant to capture the growth for your seeing as markets continue to reopen and consumers increase their engagement within our relevant beauty categories.
Our second quarter results are great reflection of the strength of our brands and the market and the ongoing recovery of our business and the beauty industry as a whole.
Going into the second half we are following the recent uptick of COVID-19 cases, as well as the pressure on the global supply chain stemming from industry wide labor and materials and strength.
Consistent with past practices, we are actively monitoring these risks and we'll adjust our business as necessary to mitigate the impact for our results.
Taking a step back and I want to emphasize that while we are certainly not ignoring the macro challenges that lie ahead I am extremely pleased with the positive indicators, we are seeing and our business and how we performed and the second quarter.
As we look towards the rest of the year I am confident and our momentum combined with the benefits driven by our RGA program physician as well to continue to unlock the potential of our brands improved margin strengthen our internal capabilities and build longterm value for the company.
And now I will hand, the call to Victoria to share more details on our second quarter of 2021 financial results.
Thank you Debbie and good morning to everyone on the call.
Before I share the details of our Q2.2021 result, I'd like to share the financial strategy, we put in place approximately 3 years ago to support the strategic pillar Debbie walked through earlier on the call.
First our goal is to ensure sufficient liquidity to support both our strategic priorities and our capital structure.
Our investment posture is focused on making smart and disciplined choices in order to align our investment to the business priority and ultimately strengthen our core iconic brands and the market.
And second we are focused on managing with agility and optimizing our business dynamically to adapt to the ever changing circumstances across all lines at the P&L and balance sheet, including our gross margin and working capital.
Before I go into the segment details I'd like to summarize Revlon strong second quarter results on a consolidated basis.
As reported net sales for $497 million and the second quarter of 2021 compared to $348 million during the prior year period and increase of $150 million or approximately 43%, which is also approximately 37% on a constant.
Currency basis.
All segments experienced double digit as reported net sales growth during the second quarter of 2021 over the prior year period.
As consumers returned to store this tempered R e-commerce net sales growth to approximately 7%.
As W mentioned at 15% of net sales R. E Commerce penetration has doubled since 2019.
As reported operating income was $15 million and the second quarter of 2021 compared to a loss of $59 million during the prior year period.
This is the best second quarter operating income reported and the last 5 years.
The higher operating income was driven primarily by $150 million and higher net sales on.
Offset by $83 million and higher selling general and administrative expenses SG&A.
This includes the reinstatement of the roughly $30 million and temporary cost reduction measures. We took and Q2 of 2020 in response to the impact of Covid.
The company was able to improve and gross margin by 900 basis points.
Adjusted operating income and the second quarter of 2021 increased by $20 million to $28 million from and $8 million adjusted operating loss and the prior year period.
Driving or improve gross margin was favorable obsolescence lower non recurring COVID-19 costs.
Favorable foreign exchange results and cost reductions achieved through our ongoing RGA program.
Adjusted EBITDA on the second quarter of 2021 was $64 million vs $45 million and the prior year period, driven by improving gross margin and top line growth.
As reported net loss was $68 million and the second quarter of 2021 vs 127 million net loss and the prior year period.
The lower net loss was driven primarily by improvements and the as reported operating income as I've previously outline.
Adjusted net loss was $55 million from the second quarter of 2021 compared to and adjusted net loss of $84 million during the prior year period.
No I'd like to turn to our segment results.
Revlon as reported segment net sales and the second quarter of 2021 for $187 million, representing and approximately 32% increase on a constant currency basis.
The segments higher net sales were driven primarily by Revlon color cosmetics, both in North America, and and international regions and to a lower and higher net sales of Revlon branded professional hair care products and international region.
This increase was driven by the momentum and the mass retail color cosmetics channel.
The increase and net sales was partially offset by decreased net sales and North America, a revlon hair color and care products and Revlon branded beauty tools.
Revlon ads reported segment profit and the second quarter of 2021 was $21 million compared to $12 million and the prior year period and increased driven primarily by the segments higher net sales as well as higher gross profit margin, partially offset by higher SG&A expenses, including brand support.
Elizabeth Arden as reported segment net sales and the second quarter of 2021 were $125 million and approximately 44% increase on a constant currency basis compared to the prior year period.
For higher net sales were driven by an increase of ceramide skin products Green tea, and white Tee fragrances, and other Elizabeth Arden branded fragrances, largely and international region.
Growth and e-commerce, the travel retail business and increased foot traffic and department stores, all contributed to the increase in net sales.
Elizabeth Arden as reported segment profit and the second quarter of 2021 was $12 million compared to $11 million and the prior year period.
And increased primarily due to the segments higher net sales, partially offset by higher SG&A expenses, including brand support as well as moderately lower gross profit margin.
Fragrances as reported segment net sales and the second quarter of 2021, where $87 million and increase of approximately 96% on a constant currency basis compared to the prior year period.
The sediments higher net sales were driven primarily by Juicy couture, John Barbados, Britney Spears, and current fragrances, and North America and to a lower extent and international region.
Fragrances as reported segment profit and the second quarter of 2021 was $20 million compared to $8 million and the prior year period.
And increase was driven by the segments higher net sales as described above partially offset by higher SG&A, including brand support expenses.
Portfolio as reported segment net sales and the second quarter of 2021 or $99 million and increase of approximately 8% on a constant currency basis compared to the prior year period.
The increase and segment net sales was driven by Mitchum, Antiperspirants Deodorants and American crew men's grooming products and also by Al My color cosmetics and C and D nail products.
This increase was partially offset by the sales of the natural Honey brand and December 2019, which continued to produce transition services revenue during 2020.
Portfolio as reported segment profit and the second quarter of 2021 was $11 million compared to $15 million and the prior year period, a decrease driven primarily by the portfolio segments higher SG&A, including brand support partially offset by higher net sales as described above as well as higher gross profit Marr.
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Turning now to liquidity.
As of June 30th 2021, and the company had approximately 153 million of available liquidity, consisting of $110 million unrestricted cash and cash equivalents as well as $54 million and available borrowing capacity under the product corporations amended 2016 revolving credit facility.
[noise] flow of approximately $10 million.
Free cash flow used and the first half of 2021 was $42 million compared to $167 million used and the prior year period.
The decrease and cash usage was driven primarily by improved operating performance and lower inventory levels.
During the second quarter, our capital expenditures were $2 million and the company spent $3 million on permanent display.
And finally as reported previously on May 7th 2021, the company closed and amendments to its 2016 asset base revolving credit agreement with mid cap funding for trust as the collateral agents and administrative agent as successor and such capacity for Citibank.
The amendment among other things extends to schedule the majority of the revolving credit facility and the second in second out term loan they're under from June 8th 2000, twenty-three 2 may 7th 2024 subject to certain springing maturity.
In summary are positive second quarter results reflect the strength of our business and commercial strategies, coupled with momentum and the broader industry and.
And Debbie said earlier going into the second half of the year. We are focused on taking the right steps to mitigate risks associated with industrywide supply chain headwind.
Importantly, we also continued to execute against our strategic pillar and are confident and or the ability to deliver on the growth potential of our iconic brands on.
Now have the call over to Debbie for closing comments.
Thank you Victoria and closing we experienced strong results and the second quarter driven by our progress against our key strategic pillars. The implementation of our RGA program as well as the market recovering from the COVID-19 and pandemic.
As we move into the second half of the year, we remain focused on capturing the growth and our iconic brands through our digital and Omnichannel acceleration R. R. G. G. A program as well as driving or ESG initiatives to make a broader positive impact on the world around us.
And now we will open the call for a question.
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And we will go ahead and take our first question from Stephanie was.
Sink from Jeffries. Please go ahead and your line is open.
Good morning. This is great snack on for staff.
I'm wondering if you could talk a little bit about the performance that you saw in the period and just the differences between mass and prestige any color there.
[noise], Oh, hi, great. Thank you for the question, it's Debbie and.
With regards to you know math and prestige, we really saw recovery across the board globally. I mean, as we mentioned we saw the recovery and the growth happening and all channels all segments and across the whole region.
As a consumer started to move back into the store that was a big driver of the growth.
Along with E. Commerce. So we can continue we continue to see that throughout the quarter and building momentum across both math and prestige was there anything specific that you were looking for in those channel.
And terms yeah, that's interesting.
Yeah, just seeing the momentum kind of across the both channel that makes sense I think some retailers are seeing more strength and math math vs for prestige on the other way around and so we're just interested in that dynamic yeah, yeah, and we thought we saw them, both and I think that.
And as reported double digit growth right across all of our segment, which is reflected and both of those channels and and.
Additions right.
Yeah.
Okay that makes sense, what about category wise across Massa procedure and the categories that you saw performing well and 1 person and the other.
And and again I would say and all the categories performed extremely well when you look at fragrances.
We were.
About 100% in terms of growth for a very strong driven by and store as well as on E Commerce.
When we look at math color cosmetic.
He saw and you could see we saw rebound happening there I mean are revlon color cosmetics.
Grew 70% and the quarter, so very strong on the color cosmetics side skin care prestige with Elizabeth Arden again, so very strong double digit growth. So you know it just really mirrors, what you're seeing on the with regards to the higher level of performance that we were so.
And it across category and across channel.
That makes sense [noise], thanks, and then kind of double Quebec clicking on Elizabeth Arden and I'm wondering if you could give a little and it's really interesting to hear about the events in and China and high non and the quarter and do you have anything going forward and many events coming up are kind.
How are you thinking about Elizabeth art and.
Internationally and as we look forward.
So we don't we don't give any for guidance and I would say is that we're always focused on the key events that happen and international markets, including and China.
We're very carefully watching any rebound that's happening and travel retail.
And art intends to play very well, there and that again is across category for art, and and and fragrances and make up as well as and skin care. So I would say is that the growth that we've seen in the past with it being event driven as well as the regular business week, we expect to see reflected as you go into.
The second quarter and the events the bigger events throughout that the second half of the year.
Okay.
And then any innovation plans that you could speak to in terms of nunez coming up.
It's a great question, we're not going to speak to it and I'm going to speak to 10 and in addition that we have planned for the second half.
But it should be coming out shortly and it's all very exciting so we're [laughter].
The market.
Great. That's great day here and then our new products have performed right and the market for the first half.
Revlon has the number 1 lift launch with our set color states that and Inc. You can see how we've had performance great performance and ancillary categories, such as brow and shadow under Revlon as well as the launches that we put forth. It went under Elizabeth Arden would provide 2.0 for.
Performing extremely well on the market.
Mhm.
Okay, and then just lastly, and thanks for answering all these questions on consumer demand kind of on the second half obviously you.
You can and touched on and you're monitoring the situation and even like you're seeing so far you can touch on just with some math mandates coming back and the uncertainty with a delta very and any anything else to on there.
Like everybody we're watching this very very closely.
And those from and internal perspective to ensure that our employees remain safe and healthy and then also from and external perspective to see the impact on the business I still think it's very early.
To call any change in behavior than what we've been seeing for the first half.
Obviously going to continue to monitor it.
That makes them. Thank you.
Thank you.
And at this time I will go ahead and turn the call back over to Debbie Prillaman. Please go ahead and.
Thank you seeing no additional questions. Let me say, thank you to all who joined the call today and and special note to our team members around the Revlon girls who are listening.
Thank you for all the efforts you make every single day and congratulations on a terrific quarter.
And this does conclude today's Revlon second quarter of 2021 earnings call. Please disconnect. Your line at this time and have a wonderful day.
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