Revlon Press Release
- August 9, 2018

NEW YORK--(BUSINESS WIRE)-- Revlon Consumer Products LLC (NYSE:REV) today announced its results for the quarter ended June 30, 2018.

Quarter ended June 30, 2018 summary developments:¹

• As Reported net sales were $606.8 million in the second quarter of 2018, compared to $645.7 million during the prior-year period. The change in net sales was primarily driven by approximately $30 million in net sales declines related to the Oxford, N.C. SAP service level disruptions impacting the Revlon and Portfolio segments, predominantly in the international market; and also the loss of certain licenses in 2018 in the Fragrance segment. These declines were partially offset by net sales growth associated with new products in the Portfolio segment and global growth in the Elizabeth Arden segment.
• As Reported operating loss was $58.0 million in the second quarter of 2018, compared to operating income of $5.2 million in the prior-year period, driven by the $30 million net sales declines from the SAP service level disruptions; a $20.1 million loss, primarily non-cash, related to reacquiring certain iconic Elizabeth Arden trademark rights; and increased distribution costs driven by growth in Asia. On an Adjusted basis, operating loss was $4.7 million in the second quarter of 2018, which includes the $30 million negative impact of reduced net sales related to the SAP service level disruptions but excludes the impact of $23.1 million in charges related to the SAP service level disruptions and the $20.1 million charge associated with reacquiring certain Elizabeth Arden trademark rights, compared to operating income of $22.1 million in the prior-year period.
• As Reported net loss was $122.5 million in the second quarter of 2018, compared to $36.5 million in the prior-year period. This decline was primarily the result of the impacts from the $30 million in reduced net sales due to the SAP service level disruptions, increased distribution costs driven by growth in Asia, as well as a negative foreign currency impact of $29.6 million when compared to the prior year quarter. These decreases were partially offset by a benefit from the provision for income taxes of $2.8 million in the second quarter of 2018, as compared to a provision for income taxes of $11.9 million in the prior year quarter.
• Adjusted EBITDA^(a) was $36.7 million, compared to $61.5 million in the prior-year period, primarily driven by approximately $30 million in reduced net sales associated with the SAP service level disruptions noted above.

"Despite SAP service level disruptions at the Oxford, N.C. plant and other broader market impacts, we are starting to see the positive effects of our strategic investments on our growth priorities. Our strategy continues to focus on strengthening our brands and enhancing the avenues through which we communicate and connect with our consumers. We are focused on ensuring broad availability of our products where the consumer shops in both brick and mortar and online. We are seeing strong growth in e-commerce and innovation, including a very positive response to the launch of Flesh, our new in-house incubated brand. We continue to build strategic capabilities and partnerships to position the company to win over the long term," said Debra Perelman, President and CEO of Revlon.

Second Quarter 2018 Results

Total Company Results

In calculating Adjusted results, adjustments were made for the Non-Operating Items described in footnote (a).

Segment Results

Effective January 1, 2018, the Company began reporting its results under four new reporting segments: Revlon; Elizabeth Arden; Portfolio brands; and Fragrances, as it began to operate under a new brand-centric organizational structure built around four global brand teams. These four reporting segments are:

Revlon - The Revlon segment is comprised of the Company's flagship Revlon brands. The Revlon segment markets, distributes and sells products primarily in the mass retail channel, large volume retailers, chain drug and food stores, chemist shops, hypermarkets, general merchandise stores, e-commerce sites, television shopping, department stores, professional hair salons, one-stop shopping beauty retailers, specialty cosmetic stores and perfumeries in the U.S. and internationally under brands such as Revlon in color cosmetics; Revlon ColorSilk and Revlon Professional in hair color; Revlon in beauty tools; and Revlon in nail color.

Elizabeth Arden - The Elizabeth Arden segment is comprised of the Company's Elizabeth Arden branded products. The Elizabeth Arden segment markets, distributes and sells fragrances, skin care and color cosmetics primarily to prestige retailers, department and specialty stores, perfumeries, boutiques, e-commerce sites, the mass retail channel, travel retailers and distributors, as well as direct sales to consumers via its Elizabeth Arden branded retail stores and ElizabethArden.com e-commerce business in the U.S. and internationally under brands such as Elizabeth Arden Ceramide, Prevage, Eight Hour, SUPERSTART, Visible Difference and Skin Illuminating in the Elizabeth Arden skin care brands; and Elizabeth Arden White Tea, Elizabeth Arden Red Door, Elizabeth Arden 5th Avenue and Elizabeth Arden Green Tea in Elizabeth Arden fragrances.

Portfoliobrands - The Company's Portfolio segment markets, distributes and sells a comprehensive line of premium, specialty and mass products primarily to the mass retail channel, hair and nail salons and professional salon distributors in the U.S. and internationally and large volume retailers, specialty and department stores under brands such as Almay and SinfulColors in color cosmetics; CND in nail polishes and nail enhancements, including CND Shellac and CND Vinylux nail polishes; Cutex nail care products; Pure Ice in nail polishes; American Crew in men's grooming products; and Mitchum in anti-perspirant deodorants. The Portfolio segment also includes a multi-cultural hair care line consisting of Creme of Nature hair care products, which are sold in professional salons, the mass retail channel and in large volume retailers and other retailers, primarily in the U.S.; and a body care line under the Natural Honey brand and a hair color line under the Llongueras brand (licensed from a third party) that are both sold in the mass retail channel, large volume retailers and other retailers, primarily in Spain.

Fragrances - The Fragrances segment includes the development, marketing and distribution of certain owned and licensed fragrances, as well as the distribution of prestige fragrance brands owned by third parties. These products are typically sold to retailers in the U.S. and internationally, including prestige retailers, specialty stores, e-commerce sites, the mass retail channel, travel retailers and other international retailers. The owned and licensed fragrances include brands such as Juicy Couture, John Varvatos, All Saints, La Perla, Wildfox, Charlie, Curve, Elizabeth Taylor, Britney Spears, Christina Aguilera, ShawnMendes, Halston,Ed Hardy, Geoffrey Beene, Alfred Sung, Giorgio Beverly Hills, Lucky Brand, Paul Sebastian, White Shoulders and Jennifer Aniston.

Effective January 1, 2018, segment profit includes the allocation of corporate expenses, as these expenses are included in segment operating performance. Segment profit has been adjusted for the prior-year period to conform to this methodology.

Revlon Segment

Revlon segment net sales in the second quarter of 2018 were $258.3 million, a 10.8% decrease compared to the prior-year period, driven by lower net sales of Revlon color cosmetics and Revlon ColorSilk hair color, primarily in the international markets due to the Oxford, N.C. service level disruptions, in addition to consumption declines in North America.

Revlon segment profit decreased by 32.3% in the second quarter of 2018 compared to the prior-year period, primarily due to the lower net sales.

Elizabeth Arden Segment

Elizabeth Arden segment net sales in the second quarter of 2018 were $106.1 million, a 4.9% increase compared to the prior-year period, primarily driven by higher net sales of Elizabeth Arden skin care products, including Ceramide and Prevage, principally in international markets.

Elizabeth Arden segment loss in the second quarter of 2018 was $5.8 million, compared to segment profit of $1.1 million in the prior-year period, primarily due to higher distribution costs associated with geographic mix and brand support expenses, partially offset by the higher net sales.

Portfolio Segment

Portfolio segment net sales of $147.6 million in the second quarter of 2018 increased by 2.9% compared to the prior-year period, primarily driven by higher net sales of Almay color cosmetics following the relaunch of the brand and lower sales incentives, as well as higher net sales of CND nail products as a result of Shellac nail polish innovation.

Portfolio segment loss in the second quarter of 2018 was $5.1 million, compared to segment loss of $1.5 million in the prior-year period, primarily as a result of higher brand support expenses, partially offset by the higher net sales.

Fragrances Segment

Fragrances segment net sales of $94.8 million in the second quarter of 2018 decreased by 15.1% compared to the prior-year period, driven primarily by the loss of certain licenses in 2018.

As a result of cost reductions associated with insourcing production capabilities, Fragrances segment profit increased by 38.8% in the second quarter of 2018 compared to the prior-year period, partially offset by the lower net sales.

Geographic Net Sales

Overall, net sales decreased by 6.0%, as detailed below by segment for the Company's North America and International Regions.

Revlon Segment

In North America, Revlon segment net sales of $148.9 million in the second quarter of 2018 decreased by 7.5% compared to the prior-year period, primarily as a result of lower net sales of Revlon color cosmetics due to consumption declines within the U.S. mass retail channel and lower net sales of Revlon ColorSilk hair color.

In International, Revlon segment net sales of $109.4 million in the second quarter of 2018 decreased by 14.9% compared to the prior-year period, due to lower net sales of Revlon color cosmetics, primarily resulting from the Oxford, N.C. service level disruptions.

Elizabeth Arden Segment

In North America, Elizabeth Arden segment net sales were $27.0 million in the second quarter of 2018, a decrease of 7.2% compared to the prior-year period, primarily due to the decrease in net sales of Elizabeth Arden color cosmetics driven primarily by certain customer store closures.

In International, Elizabeth Arden segment net sales of $79.1 million in the second quarter of 2018 increased by 9.9% compared to the prior-year period, primarily driven by higher net sales of skin care products within the EMEA and Asia regions.

Portfolio Segment

In North America, Portfolio segment net sales of $94.8 million in the second quarter of 2018 increased by 18.2% compared to the prior-year period, primarily driven by higher net sales of Almay color cosmetics and CND nail products.

In International, Portfolio segment net sales of $52.8 million in the second quarter of 2018 decreased by 16.5% compared to the prior-year period, primarily due to lower net sales of regional brands, as well as the Oxford, N.C. service level disruptions.

Fragrances Segment

In North America, Fragrances segment net sales of $61.2 million in the second quarter of 2018 decreased by 8.2% compared to the prior-year period, primarily driven by the loss of certain licensed designer and celebrity fragrances.

In International, Fragrances segment net sales of $33.6 million in the second quarter of 2018 decreased by 25.3% compared to the prior-year period, primarily due to the loss of certain licensed fragrance brands.

Cash Flow

Net cash used in operating activities in the first six months of 2018 was $190.1 million, compared to $139.2 million for the prior-year period. Free cash flow used in the first six months of 2018 was $220 million, compared to $179 million used in the prior-year period. These changes were primarily driven by the higher net loss attributed to lower net sales as compared to the prior-year period, partially offset by lower capital expenditures.

Liquidity Update

In June 2018, the Company entered into the 2018 Senior Unsecured Line of Credit Agreement providing the Company with a $50 million senior unsecured line of credit from MacAndrews & Forbes Incorporated, Revlon's majority stockholder. After giving effect to such transaction, as of June 30, 2018, the Company had approximately $106.5 million of available liquidity, consisting of $81.6 million of unrestricted cash and cash equivalents, $35.0 million of available borrowing capacity under the 2018 Senior Unsecured Line of Credit, as well as $6.5 million in available borrowing capacity under the Revolving Credit Facility (which had $376.7 million drawn as of such date), less float of $16.6 million.

In July 2018, the Company entered into the Asset-Based Term Loan Agreement, which provides the Company with a euro-denominated €77 million term loan facility (or the equivalent of approximately $90 million). After giving effect to this transaction, the Company's available liquidity as of July 31, 2018 was approximately $163.7 million, consisting of $81.3 million of unrestricted cash and cash equivalents, $50 million of available borrowing capacity under the 2018 Senior Unsecured Line of Credit, as well as $46.5 million in available borrowing capacity under the Revolving Credit Facility (which had $362.8 million drawn as of such date), less float of $14.1 million.

Second Quarter 2018 Results Conference Call

The Company will host a conference call with members of the investment community today, August 9, 2018, at 8:30 A.M. NYC time to discuss its second quarter 2018 financial results. Access to the call is available to the public at www.revloninc.com.

Adjusted net loss and adjusted diluted loss per common share exclude the after-tax impact of the Non-Operating Items from As Reported net loss.

The Company excludes the EBITDA Exclusions and Non-Operating Items, as applicable, in calculating the Non-GAAP Measures because the Company's management believes that some of these items may not occur in certain periods, the amounts recognized can vary significantly from period to period and/or these items do not facilitate an understanding of the Company's underlying operating performance.

Free cash flow is defined as net cash provided by operating activities, less capital expenditures for property, plant and equipment. Free cash flow excludes proceeds on sale of discontinued operations. Free cash flow does not represent the residual cash flow available for discretionary expenditures, as it excludes certain expenditures such as mandatory debt service requirements, which for the Company are significant.

The Company's management uses the Non-GAAP Measures as operating performance measures, and in the case of free cash flow, as a liquidity measure (in conjunction with GAAP financial measures), as an integral part of its reporting and planning processes and to, among other things: (i) monitor and evaluate the performance of the Company's business operations, financial performance and overall liquidity; (ii) facilitate management's internal comparisons of the Company's historical operating performance of its business operations; (iii) facilitate management's external comparisons of the results of its overall business to the historical operating performance of other companies that may have different capital structures and debt levels; (iv) review and assess the operating performance of the Company's management team and, together with other operational objectives, as a measure in evaluating employee compensation, including bonuses and other incentive compensation; (v) analyze and evaluate financial and strategic planning decisions regarding future operating investments; and (vi) plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.

Management believes that the Non-GAAP Measures are useful to investors to provide them with disclosures of the Company's operating results on the same basis as that used by management. Management believes that the Non-GAAP Measures provide useful information to investors about the performance of the Company's overall business because such measures eliminate the effects of certain charges that are not directly attributable to the Company's underlying operating performance. Additionally, management believes that providing the Non-GAAP Measures enhances the comparability for investors in assessing the Company's financial reporting. Management believes that free cash flow is useful for investors because it provides them with an important perspective on the cash available for debt service and other strategic measures, after making necessary capital investments in property and equipment to support the Company's ongoing business operations, and provides them with the same measures that management uses as the basis for making resource allocation decisions.

Accordingly, the Company believes that the presentation of the Non-GAAP Measures, when used in conjunction with GAAP financial measures, are useful financial analytical measures that are used by management, as described above, and therefore can assist investors in assessing the Company's financial condition, operating performance and underlying strength. The Non-GAAP Measures should not be considered in isolation or as a substitute for their respective most directly comparable As Reported financial measures prepared in accordance with GAAP, such as net income/loss, operating income/loss, diluted earnings/loss per share or net cash provided by (used in) operating activities. Other companies may define such non-GAAP measures differently. Also, while EBITDA and Adjusted EBITDA, as used in this release, are defined differently than Adjusted EBITDA for the Company's credit agreements and indentures, certain financial covenants in its borrowing arrangements are tied to similar financial measures. These non-GAAP financial measures should be read in conjunction with the Company's financial statements and related footnotes filed with the SEC.

^(b) Segment profit is defined as income from continuing operations for each of the Company's Revlon, Elizabeth Arden, Portfolio brands, and Fragrances segments, excluding the EBITDA Exclusions. Segment profit also excludes the impact of certain items that are not directly attributable to the segments' underlying operating performance, including the impact of the Non-Operating Items noted above in footnote (a). The Company does not have any material inter-segment sales.

Forward-Looking Statements

Statements made in this press release, which are not historical facts, are forward-looking and are provided pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date they are made and the Company undertakes no obligation to publicly update any forward-looking statement, whether to reflect actual results of operations; changes in financial condition; changes in general U.S. or international economic or industry conditions and/or conditions in the Company's reportable segments; changes in estimates, expectations or assumptions; or other circumstances, conditions, developments and/or events arising after the issuance of this press release, except for the Company's ongoing obligations under the U.S. federal securities laws. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on preliminary or potentially inaccurate estimates and assumptions that could cause actual results to differ materially from those expected or implied by the estimated financial information. Such forward-looking statements include, among other things that: (i) the Company's belief that despite SAP service level disruptions at the Oxford, N.C. plant and other broader market impacts, that it is starting to see the positive effects of its strategic investments on its growth priorities; (ii) the Company's plans to focus on strengthening its brands, enhance the avenues through which it communicates and connects with its consumers and ensure broad availability of its products where the consumer shops in both brick and mortar and online; (iii) the Company's belief that it is seeing strong growth in e-commerce and innovation, including a very positive response to the launch of Flesh; and (iv) the Company's belief that it continues to build strategic capabilities and partnerships to position the company to win over the long term. Actual results may differ materially from the Company's forward-looking statements for a number of reasons, including as a result of the risks and other items described in Revlon's filings with the SEC, including, without limitation, in Revlon's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and any amendments thereto filed with the SEC during 2017 and 2018 (which may be viewed on the SEC's website at http://www.sec.gov or on Revlon Consumer Products LLC's website at http://www.revloninc.com). Additional important factors that could cause actual results to differ materially from those indicated by the Company's forward-looking statements include risks and uncertainties relating to: (i) less than expected results from the Company's strategic investments on its growth priorities and/or unanticipated circumstances or results affecting the Company's financial performance and/or its ability to achieve its sales growth priorities, such as less than anticipated growth due to, among other things, less than effective new product innovation and development and/or greater than expected investment to achieve such initiatives; (ii) greater than expected challenges and difficulties in strengthening the Company's brands, less than expected investment behind such activities and/or less than expected success in strengthening digital engagement with its consumers, as well as unanticipated costs or difficulties and/or delays in completing such initiatives; (iii) difficulties and/or delays in driving e-commerce and online sales growth and/or accelerating speed of innovation, difficulties and/or delays in developing the ability to successfully compete in a digitally-driven landscape, greater than expected levels of investment to achieve such initiatives and/or greater than expected challenges and difficulties in the retail and e-commerce environment; and/or (iv) difficulties, delays or the inability of the Company to build strategic capabilities and partnerships to position the company to win over the long term, such as due to less than expected customer and/or consumer acceptance of the Company's new or existing products, its advertising, promotional, pricing and/or marketing campaigns and/or brand communication or social engagement and/or less than expected levels of execution with customers. Factors other than those referred to above could also cause Revlon's results to differ materially from expected results. Additionally, the business and financial materials and any other statement or disclosure on, or made available through, Revlon's website or other websites referenced herein shall not be incorporated by reference into this press release.

View source version on businesswire.com: https://www.businesswire.com/news/home/20180809005156/en/

Investor Relations:
Revlon
212-527-5230
Eric.warren@revlon.com

Source: Revlon