Revlon reports Q1 net earnings of US$5.5M, compared to year-ago loss of US$6.9M, as net sales rise 44.2% to US$469.8M

Nevin Barich

NEW YORK , April 30, 2014 (press release) – Revlon, Inc. (NYSE:REV) today announced results for the first quarter ended March 31, 2014. As a result of the acquisition of The Colomer Group (“TCG”) in October 2013, to provide a basis for comparing the first quarter of 2014 to the first quarter of 2013, this release presents the Company’s results using the following measures:

GAAP as reported (“As Reported”);

Non-GAAP (“Adjusted”), which excludes certain non-recurring items and non-operating items from As Reported results; and

Non-GAAP pro forma (“Pro Forma Adjusted”), which represents pro forma results, or the As Reported financial results and related acquisition financing of Revlon and TCG as if they were a combined company for all of 2013 (“Pro Forma”), and excludes certain non-recurring items and non-operating items from such Pro Forma results.

See footnote (a) for further discussion of the Company’s non-GAAP measures. Reconciliations of As Reported results to Adjusted results and to Pro Forma Adjusted results are provided as an attachment.

First Quarter 2014 Results

The Company’s results of operations have been adjusted to reflect the Company’s exit of its business operations in China, which plans were announced in December 2013, as a discontinued operation for all periods presented.

The Company’s results of operations of its brands sold in retail channels, including retail brands acquired in the TCG acquisition, are included in the “Consumer” segment, and the results of operations of the brands sold in professional channels acquired as part of the TCG acquisition are included in the “Professional” segment.

Segment Results

Consumer Segment

Consumer segment net sales decreased 0.1% to $339.5 million in the first quarter of 2014 as compared to Pro Forma net sales of $340.0 million in the first quarter 2013. Excluding the impact of foreign currency fluctuations (“XFX”), net sales during the first quarter of 2014 increased 2.8%, primarily driven by a $6.3 million favorable returns adjustment in the U.S. during the first quarter of 2014 as a result of lower expected discontinued products related to the Company's strategy to focus on fewer, bigger and better innovations, as well as higher net sales of Revlon ColorSilk hair color, partially offset by lower net sales of SinfulColors color cosmetics. The Consumer segment also includes the results of retail brands acquired in the TCG acquisition, which represent $15.5 million of net sales in the first quarter of 2014 and $14.1 million of Pro Forma net sales in the first quarter of 2013.

Consumer segment profit in the first quarter of 2014 was $71.5 million, as compared to Pro Forma Consumer segment profit of $76.7 million in the first quarter of 2013. On an XFX basis, Consumer segment profit during the first quarter of 2014 decreased 4.0%, primarily due to $8.4 million of higher advertising expense to support the Consumer brands, partially offset by an increase in gross profit primarily due to the returns adjustment discussed above, net of related inventory write-off charges.

Professional Segment

Professional segment net sales for the first quarter of 2014 were $130.3 million compared to Pro Forma net sales of $110.0 million in the first quarter 2013. On an XFX basis, net sales during the first quarter of 2014 increased 17.4% primarily due to higher net sales of CND Shellac and American Crew products in the first quarter of 2014, as well as the launch of CND Vinylux in the second quarter of 2013 and new products under the Crème of Nature brand in the later part of 2013, which therefore were not part of the comparable period in 2013.

Professional segment profit in the first quarter of 2014 was $31.9 million, as compared to Pro Forma Professional segment profit of $18.1 million in the first quarter of 2013. On an XFX basis, Professional segment profit during the first quarter of 2014 increased 77.9%, primarily due to higher net sales, as discussed above, as well as lower advertising expense primarily due to the timing of advertising campaigns in 2013 compared to 2014.

Geographic Results

United States

Total Company net sales in the U.S. in the first quarter of 2014 were $250.2 million, compared to $232.0 million of Pro Forma U.S. net sales in the first quarter of 2013, an increase of 7.8%. Such increase was primarily due to higher net sales of CND Shellac and American Crew products in the first quarter of 2014, the launch of CND Vinylux in the second quarter of 2013 and new products under the Crème of Nature brand in the later part of 2013, which did not benefit the first quarter of 2013, as well as a $6.3 million favorable returns adjustment in the U.S. during the first quarter of 2014, as discussed above.

International

Total Company International net sales in the first quarter of 2014 were $219.6 million, compared to $218.0 million of Pro Forma International net sales in the first quarter of 2013. On an XFX basis, net sales during the first quarter of 2014 increased 4.8% primarily driven by higher net sales of CND nail products throughout most of the International region, as well as higher net sales of Revlon color cosmetics in Japan.

Total Company Results

Total Company Adjusted operating income in the first quarter of 2014 was $62.8 million, compared to Pro Forma Adjusted operating income of $52.0 million in the prior year period, an increase of 20.8%. Total Company Adjusted EBITDA in the first quarter of 2014 was $87.8 million compared to Pro Forma Adjusted EBITDA of $76.2 million in the prior year period, an increase of 15.2%. Non-recurring items excluded from Adjusted results in the first quarter of 2014 include a charge of $13.6 million for restructuring and related actions, $3.8 million in acquisition and integration costs related to the TCG acquisition and $2.6 million in cost of sales related to an inventory purchase accounting adjustment as a result of the TCG acquisition. Non-recurring items excluded from Pro Forma Adjusted results in the first quarter of 2013 include an $8.3 million gain from insurance proceeds related to the June 2011 fire that destroyed the Company’s facility in Venezuela and a charge of $0.3 million for restructuring and related actions. The increase in Adjusted operating income and Adjusted EBITDA was primarily due to higher gross profit as a result of increased net sales, partially offset by an increase in advertising expenses within SG&A expenses. In addition, Adjusted operating income and Adjusted EBITDA were negatively impacted by foreign currency fluctuations of approximately $2.0 million.

Adjusted income from continuing operations, before income taxes, was $37.6 million in the first quarter of 2014 compared to Pro Forma Adjusted income from continuing operations, before income taxes, of $15.9 million in the prior year period, an increase of $21.7 million. In addition to the increase in Adjusted operating income discussed above, the Company had decreases in foreign currency losses and interest expense, both on a Pro Forma basis.

In the first quarter of 2014, the Company recognized a $1.9 million loss from the early extinguishment of debt related to the bank term loan repricing in February 2014, compared to a loss of $27.9 million from the early extinguishment of debt in the first quarter of 2013, related to the February 2013 refinancing of the Company’s senior notes and the bank term loan amendment.

On an As Reported basis, net income in the first quarter of 2014 was $5.5 million, or $0.11 earnings per diluted share, compared to net loss of $6.9 million, or $0.13 loss per diluted share, in the same period last year.

Integration Program

As previously announced, in January 2014, the Company implemented actions to integrate TCG’s operations into the Company’s business, as well as additional restructuring actions identified to reduce costs across the Company’s businesses (all such actions, together, the “Integration Program”). During the first quarter of 2014, the Company recognized $13.6 million of restructuring and related charges and $3.8 million of acquisition and integration costs related to the Integration Program.

Cash Flow

Net cash used in operating activities in the first quarter of 2014 was $45.5 million compared to $16.9 million in the same period last year. Free cash flow in the first quarter of 2014 was negative $49.1 million compared to negative $22.0 million in the same period last year. The first quarter of 2014 as compared to the same period last year had increased cash used in operating activities of $28.6 million as a result of unfavorable changes in working capital, including approximately $13.0 million in restructuring and other payments related to the Company’s exit of its China operations, as well as payments of acquisition and integration costs related to the TCG acquisition, partially offset by cash provided by operating activities related to the operations acquired in the TCG acquisition.

First Quarter 2014 Results and Conference Call

The Company will host a conference call with members of the investment community on April 30, 2014 at 9:30 A.M. EDT to discuss First Quarter 2014 results. Access to the call is available to the public at www.revloninc.com.

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