Q4 2021 Revlon Inc Earnings Call
Yeah.
Good morning, My name is Britney and I'll be your conference operator today at this time I would like to welcome everyone to the Revlon fourth quarter and full year 2021 earnings conference call.
All participants lines have been placed in a listen only mode to prevent any background noise.
The speaker's remarks, there will be a question and answer session. If he would like to ask a question at that time. Please press star one on your telephone keypad.
If you should need operator assistance. Please press star zero. Thank you I would now like to turn the call over to you Jeff kernel Vice President Treasury. Please go ahead.
Thank you Britney good morning, everyone and thank you for joining the call.
Earlier today the company released its financial results for the quarter ended December 31 2021.
If you have not already received a copy of the earnings release, a copy can be obtained on the company's website at Revlon, Inc. Dot com.
On the call. This morning are Debbie Perelman, our president and Chief Executive Officer.
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.
Information on factors that could affect actual results and cause them to differ materially from such forward looking statements.
At force in the company's SEC filings, including its Q4, 2021 Form 10-K .
The company undertakes no obligation to publicly update any forward looking statements except for the company's obligations under the U S Federal Securities laws.
Remarks today will include a discussion of certain GAAP and non-GAAP results consistent with past reporting practices non-GAAP results exclude certain non operating items that are not directly attributable to the company's underlying operating performance.
Adjusted measures are defined in the earnings release and are also reconciled in the financial tables at the end of the release.
Please note that certain amounts provided throughout this call have been rounded.
The call today should not be copied or recorded.
And with that I will turn the call over to Debbie.
Thank you Jeff Good morning, everyone and thank you for joining today's call.
Before I share our results from the fourth quarter of 2021, I wanted to take a step back and reflect on our full year 'twenty.
2020 , one began with tremendous uncertainty as much of the world with facing winter searches and COVID-19, vaccinations were not yet readily available in many cities states and countries were under some form of restriction for the beauty industry. While many retail stores were opened traffic remain light in many salons were.
As the year progressed, however, we saw tremendous recovery markets reopened and are consumers eagerly return to the beauty category across all channels.
From a revlon perspective in 2021, all of our regions and reporting segments returned to growth.
With Arden fragrances segments grew double digits as did our Revlon professional business and many of our key portfolio brands.
Consumption rebounded with Revlon color cosmetic retail sales in the U S mass channel growing double digits and outpacing the market in the last three quarters.
Our mass fragrance business, maintaining its category leadership position.
Also based on retail sales in the U S mass channel Our award winning Revlon color stay saddening lip color was the number one lip launch of 2021, and our Revlon color stay eyeliner pencil is the number one eye liner.
We continue to drive innovation in our Elizabeth Arden franchises, the propulsion ceramide, but the launch of <unk> 2.0, anti aging daily serum and retinol Ceramide line erasing eye cream.
Double down on our sustainability goals with over two thirds of our 2021, new product launches incorporating a sustainable element, including the formula <unk> packaging.
And the Revlon Global growth accelerator program continues to drive our long term profitable growth through a combination of commercial and cost reduction initiatives.
I am so proud of the Revlon teams around the world for all that we have accomplished in 2021.
However, despite this momentum in the markets and in our brands, we have not been immune to the macro supply chain challenges that are also impacting many other company.
As a first highlighted in our third quarter call, we are seeing pricing pressure and shortages with key ingredients and components.
Logistics challenges across all modes of transportation and persistent labor shortages, all of which negatively impacted our business in the fourth quarter.
Turning more specifically to our fourth quarter results as reported net sales were $615 million, a slight decline of $11 million or approximately 2% versus prior year quarter.
This decline was largely driven by the supply chain challenges, I highlighted which impacted our ability to manufacture and deliver our products.
As omicron spread far more rapidly than expected in the fourth quarter. These challenges were exacerbated, particularly with regards to labor shortages, specifically at our Oxford and Jacksonville facility.
Despite these headwinds our adjusted EBITDA was $108 million, just $4 million lower than the previous year quarter.
And we were able to drive an improved gross margin and very strong operating income.
Before I hand, the call to Victoria to walk you through the detailed financial results, including our segment results. Let me touch on some of the steps. The company is taking to mitigate these prevailing supply chain challenges.
To protect our business as well as manage against inflation, we are tightly managing our costs and implementing select price increases across our portfolio globally.
From an external supply chain perspective, we have rerouted freight and sourced additional vendors for key materials and components.
To address the internal labor shortages, we have significantly increased the personnel in our manufacturing facilities.
These actions resulted in increased manufacturing production levels as we entered 2022, specifically for our Revlon color cosmetic product.
We are also announced today that we are extending our R. G. G. A program, which will continue to drive additional cost savings across the business.
Victoria will share more details on this extension later in the call.
Despite the macroeconomic supply chain headwinds, we are facing which at this time, we believe to be temporary I remain optimistic about the strength of our brands in the market. We continue to dynamically manage our business and remain focused on executing against our strategy to drive long term sustainable and profitable growth.
And now I will turn the call to Victoria.
Thank you Debbie and good morning to everyone on the call.
Before I share the details of our fourth quarter 2021 results I would like to reiterate our financial strategy, which supports revlon's long term ambition and helps us to manage through a volatile external environment.
First our goal is to ensure sufficient liquidity to support both our growth and our capital structure.
Our investment posture is focused on making smart and disciplined choices in order to align our investments to the business priorities and ultimately strengthen our core iconic brands in the market.
And second we're focused on managing with agility to adapt to the ever changing circumstances across all lines of the P&L and balance sheet.
These strategies have served revlon, well through COVID-19, and our supply chain challenges continue to impact businesses across most industries.
Before I get into the segment details I'd like to summarize Revlon fourth quarter results on a consolidated basis.
As reported net sales were $615 million in the fourth quarter of 2021 compared to $627 million during the prior year period, a decrease of $11 million or approximately 2% on constant currency and as reported basis.
As Debbie mentioned earlier much of this year over year decrease can be attributed to global supply chain challenges.
As reported operating income was $67 million in the fourth quarter of 2021 compared to $28 million during the prior year period, an improvement of $39 million.
The higher operating income was driven primarily by gross margin improvement up 240 basis points and $30 million and lower selling general and administrative expenses SG&A.
Adjusted operating income in the fourth quarter of 2021 increased by $1 million to $76 million from $75 million of adjusted operating income in the prior year period.
Adjusted EBITDA in the fourth quarter of 2021 was $108 million versus $112 million in the prior year period.
The lower adjusted EBITA was driven primarily by the lower as reported net sales.
As reported net income was $10 million in the fourth quarter of 2021 versus a $234 million net loss in the prior year period.
Higher net income was primarily due to the prior year period, reflecting a $202 million non cash charge to the company's federal tax valuation allowance and higher as reported operating income over the prior year period.
Next I would like to turn to our segment results.
Revlon segment net sales in the fourth quarter 2021 were $206 million, a $1 million increase or essentially flat on a constant currency basis compared to the prior year period.
The segment's modest growth was driven by higher net sales of Revlon branded professional hair care products in all regions as well as Revlon color cosmetics in North America and in Latin America.
This increase was partially offset by decreased net sales in North America of Revlon branded beauty tools.
Additionally, supply chain constraints largely impacted this segment, primarily in North America, which is evident when looking at our strong consumption growth of Revlon color cosmetics in the U S mass channel of approximately 30% versus net sales growth of low single digits.
Revlon segment profit during the fourth quarter of 2021 was $42 million or $4 million decrease or approximately 8% on a constant currency basis compared to the prior year period.
This decrease was driven primarily by the Revlon segment higher transportation costs and higher SG&A expenses as we continued to support the brands and markets.
Elizabeth Arden segment net sales in the fourth quarter of 2021 were $173 million or $9 million decrease or 6% on a constant currency basis compared to the prior year period.
The segment's net sales decrease was driven primarily by lower direct to consumer E. Commerce net sales at Elizabeth Arden Dot Com in North America.
And increased competition and slowing growth rates in China.
This decrease was partially offset by increased net sales of green tea and white tea fragrance is in Asia and EMEA.
Eight hour skincare product, primarily in international regions as well as strong travel retail channel performance in EMEA.
Elizabeth Arden segment profit during the fourth quarter of 2021 was $21 million.
It really flat compared to the prior year period on an as reported basis.
Down 5% on a constant currency basis.
This decrease on a constant currency basis was driven primarily by the Elizabeth Arden segment higher SG&A expenses as well as higher transportation costs during the period.
Fragrances segment net sales in the fourth quarter of 2021 were $125 million or $12 million decrease or 9% on a constant currency basis compared to the prior year period.
The fragrances segment decrease in net sales was driven primarily by lower net sales in the North America region due to fewer sales of gift sets and some space loss, which occurred earlier in the year as well as supply chain constraints.
Fragrances segment profit during the fourth quarter of 2021 was $22 million and $11 million decrease or 33% on a constant currency basis compared to the prior year period.
This decrease was driven primarily by the fragrances segment's lower net sales and higher SG&A expenses.
Portfolio segment net sales in the fourth quarter of 2021 were $112 million, a $9 million increase or 9% on a constant currency basis over the prior year period the portfolio.
Segment increase in net sales was driven primarily by higher net sales of CND nail products in North America and EMEA.
Almay color cosmetics in North America American crew mens grooming products in North America, and international regions and higher net sales of Creme of nature in North America anemia.
This increase was partially offset by lower net sales of previously sold brands.
Portfolio segment profit during the fourth quarter of 2021 was $25 million and $11 million increase or 84% on a constant currency basis compared to the prior year period.
This increase was driven primarily by the portfolio segment higher net sales higher gross profit margin and lower SG&A expenses.
Turning now to liquidity.
As of December 31, 2021, the company had approximately $172 million of available liquidity.
Listing of $102 million of unrestricted cash and cash equivalents.
As well as $72 million in available borrowing capacity under the product Corporation's amended 2016 revolving credit facility less float of approximately $3 million.
Free cash flow used in 2021 was $25 million compared to $108 million used in the prior year period.
The decrease in free cash flows used was primarily driven by a lower as reported net loss.
During 2021, our capital expenditures were $14 million and the company spent $25 million on permanent displays.
Finally, as Debbie mentioned today, we announced an expansion and extension of our RGA program through 2024.
This extension and expansion will allow the company to continue to first focus on implementing new opportunities and second provide an additional year to implement larger project.
Under this extension and expansion the company expects to deliver an additional range of annualized cost reductions of approximately $50 million to $65 million through the end of 2024 and expects to recognize an additional cost range of approximately 8 million to $10 million of total pretax restructuring and related charges.
The company also expects to incur approximately $5 million of additional capital expenditures.
In summary, our fourth quarter results reflect the strength of our business and commercial strategies, which were critical mitigates to the headwinds created by today's macro supply chain challenges.
Importantly, we remain singularly focused on mitigating those supply chain risks in 2022, and continuing to transform our company with the extension and expansion of the <unk> program.
I will now hand, the call over to Debbie for closing comments. Thank.
Thank you Victoria in closing given what we see today, we believe that the current supply chain headwinds, while challenging are temporary and that our brands have tremendous strength and opportunity for growth in the market.
We remain focused on managing through these disruptions, while continuing to execute on our plans for the future.
And now we will open up the call for questions.
At this time, if you would like to ask a question. Please press the star and one on your Touchtone phone.
Remove yourself from the queue at any time by pressing the pound key.
Again that is star one if he would like to ask a question and we will take our first question from William Reuter with Bank of America. Your line is now open.
Good morning.
You you went through a handful of different.
Things that youre going to be doing to mitigate the supply chain challenges one of which is cost savings.
Sure.
Filings you've laid out you know some ranges of potential savings that are still to come or do you have a sense for what the amount of cost savings you might see in 2022 will be.
Hey, Bill this is Victoria.
That's a very good that's a very good question and one of the things that we were pleased with this quarter is that we had worked through an extension and expansion of our <unk> program.
So that we would realize through 2024 additional additional cost savings and re validated that we were on track.
To deliver the program savings that we had disclosed as you know we don't give specific financial forward guidance, so I'm not going to be able to talk about how much we're doing in 2000 and expect to do in 2022, but the disclosure does confirm that we are on track to deliver the program the.
The program parameters that we've outlined.
Okay, and I can I'll wait until your 10-K is filed but is there anything you can disclose about whether the range of the potential some will be the same as what was in your three Q1 0-Q.
The range of what the rate the total for the ranges.
Yeah, the range of the savings because it was it was pretty wide I can't remember the exact range, but it was relatively wide as the range is going to stay the same for the whole program. So we took the range up right. You mean, the breadth of the range. We took the range up to $3 25 to $3 90.
Through 2020 through 2024, it was $2 75 to $3 25, and we took it up based on our expectations of $50 million to $65 million in additional cost savings.
Awesome, that's yeah, that's exactly what I was asking okay. And then the second question is you guys highlighted that the.
The supply chain negatively impacted revenues during the fourth quarter is there any way that you have attempted to try and quantify how many how much revenue was lost or may be shifted into the first quarter.
So obviously as I said in our in the comments, we are singularly focused on managing the supply chain so supply chain risks.
As we've seen even over the last two weeks the uncertainty and volatility in the world have have definitely increased impacting.
What was already a very volatile supply chain situation.
We are monitoring the risks were mitigating the risk as I said, even around our financial strategy managing with agility in terms of our overall spend levels and production.
One one way of looking at it and Revlon color cosmetics in North America was the channel that was impacted the most.
But it gives you some ideas it parallels what I said in the third quarter also but we saw for Nielsen Revlon color cosmetics consumption growth, which is our customers sell out to our consumers was up 30% year over year, whereas our sales were low single digits now again, that's not representative of all our channels, but that is representative.
The largest impact to our to our business.
I'm with you, Okay I'll pass to others. Thank you.
Yeah.
We will take our next question from Stephanie Wishnick with Jefferies. Your line is open.
Hi, Good morning. This is Chris Thank God for SaaS.
First question is on innovation innovation upcoming this year any major innovation initiatives that you have planned for 2022.
Hi, Greg This is Debbie so we have a number of innovations planned for 2022 across the brands and so from Revlon to Elizabeth Arden two fragrances. Some are rolling into the market now we had a lot of success in 2021.
<unk> with our new products that we put into market I'll just highlight again that with the number one lip launch for Revlon color cosmetics in the U S. As well as we continue to maintain leadership in eyeliner and we're looking to build out the categories, where we have strength in face as well as hair color as well as in lip so you'll see.
Those rolling out and then for Elizabeth Arden, you'll shortly see our skincare launches coming into market.
So those are the areas that I would highlight I think right now we have our relaunch of our color silk hair color hitting market right now.
Great. Thank you that's helpful. And then just wondering if you could speak about the marketing expense component of SG&A and how that might be changing like are you seeing improved efficiency in any areas that you're investing in.
So from a company as a whole.
Yeah, sorry, yeah, okay. So.
So we normally don't break out the marketing spend but what I would say to that is that we continue to support the brands and we have seen an increase quarter over quarter year over year with regards to them.
The marketing spend that we put against our brands and we're always looking at ways in which we can drive efficiency and also effectiveness across the marketing spend that we have in terms of the different channels that we play as well as the different platforms that we use.
Whether it's on digital or whether it's on TV or print.
As well as other types of social channels and social Commerce, we're always looking at how to balance that not only in terms of the ROI, but how effective we are in terms of reaching our consumer.
Okay.
Great. Thank you.
We have no further questions on the line at this time I will turn the program back over to Debbie permit for any additional or closing remarks.
Thank you seeing no additional questions. Let me say, thank you to all of that have joined the call today and a special note to our team members around the Revlon World who are listening. Thank you for all the efforts that you make every single day.
Thank you again and have a good day.
This does conclude today's revlon's fourth quarter and full year 2021 earnings call. Please disconnect. Your line at this time and have a wonderful day.
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