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Alberto-Culver Co. (NYSE:ACV)

F4Q08 (09/30/08) Earnings Call

October 27, 2008 11:00 am ET

Executives

Jim Marino - President and CEO

Ralph Nicoletti - SVP and CFO

Analysts

Wendy Nicholson - Citi Investment

Chris Ferrara - Merrill Lynch

Nik Modi - UBS

Linda Bolton Weiser - Caris

Bill Schmitz - Deutsche Bank

Andrew Sawyer -Goldman Sachs

Peter Thompson - COHO

Connie Maneaty - BMO Capital

Jason Rogers - Great Lakes Review

Jason Gere - Wachovia

Jon Andersen - William Blair

Operator

Welcome to the Alberto-Culver Conference Call. A replay of this call will be available for 30 days beginning this afternoon. The call and numbers are 800-642-1687 or 706-645-9291. Please enter ID code 67301132. All lines will be muted during the broadcast. After the presentation, there will be an opportunity to ask questions. (Operator Instructions)

Before we begin, the company asked me to remind you that the actual results with respect to any forward-looking statements that are made today might differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ, are spelled out in Alberto-Culver's Annual 10-Q and 10-K reports, which the company invites to you study.

In addition due to the disclosure of organic sales growth and financial results excluding the restructuring and discreet items, this call may include mention of certain non-GAAP financial measures. Reconciliations of these financial measures to the most directly comparable GAAP measures are provided on the company's website in the Investing section and are attached to the earnings release issued this morning and filed on Form 8-K with the Securities and Exchange Commission.

Now, I would like to introduce the host of today's call Mr. Jim Marino, President and CEO, of Alberto-Culver Company. Mr. Marino, you may begin.

Jim Marino

Good morning, and thank you, April. I'd like to welcome all of you this morning to our fourth quarter and fiscal year 2008 conference call. I'm joined today by Ralph Nicoletti, our Chief Financial Officer and Doug Craney, our Head of Investor Relations.

We are very pleased to close the chapter on another terrific record quarter and fiscal year for Alberto-Culver and our shareholders. We delivered exceptional results in a challenging economic environment. I'm extremely proud of our team.

In addition to our financial results, which I will detail shortly, during the year, we successfully accomplished several other major initiatives that strengthen our portfolio, expanded our geographic presence and better positioned us for future growth.

We successfully completed the divestiture of Cederroth International, which simplified our business and enhanced our focus on beauty care. We recently acquired Noxzema adding to our skin care portfolio and are very excited about the potential of this well-known iconic brand.

We entered a new market in Spain and our off to a very, very strong start. We also took a major step forward to improve our supply chain by opening a new manufacturing facility in Jonesboro, Arkansas that should service well for years to come, while we also worked diligently to close three existing manufacturing facilities. Jonesboro is having a positive impact on our margins.

And importantly, we ended the year in a very, very strong financial position. We have a $125 million more cash than we had at the beginning of the year. And during the year, we increased our cash dividend, we retired $120 million of debt and we bought back more than a $100 million of Alberto-Culver stock.

Now, as you review the information from this morning's press release, there are few things I'd like to highlight. Fourth quarter sales grew 7.3%, or 8.4% organically, when excluding the impact from foreign exchange. The sales growth was driven by growth in TRESemme across all of our regions strengthened our multi-cultural brands and growth in Latin America across of our brands.

Our sales growth was tempered partially by two factors. First, as discussed in our last call, Nexxus results in the quarter and fiscal year were impacted by prior year club channel distribution gains and corresponding pipeline sales. Although, net sales decreased in the quarter, consumption trends for Nexxus continue to outpace the category.

In fact, if you look at the top 12 brands in the category, Nexxus was the second fastest growing brand in the last 12 weeks, second, of course, to our own TRESemme.

Second, St. Ives lotions and facial cleansers in the US were soft in the quarter due to heightened competitive activity. However, outside the US results remain strong. But despite these issues, we exceeded our expectations with respect to revenue growth and closed the year with very strong results.

Our pre-tax earnings on a continuing operations basis excluding restructuring increased the strong 21% to $47 million. Following the successful completion of the divestiture of Cederroth, we have internally reorganized and appointed a US President and an International President reporting directly to me.

This structure will further strengthen our focus in key markets and in conjunction with our global marketing team, optimize the development of our brands around the world. As a result, we're now reporting two new business segments; United States and International.

Approximately 60% of our overall business is now in the US with remaining 40% being outside the US in the US, our sales increased to nearly $224 million in the quarter led by double-digit growth in TRESemme, which was partially offset by the decreases in Nexxus and St. Ives that I previously mentioned.

International sales increased 17.3%, which includes approximately 3% of negative currency impact to $162 million. TRESemme led our International growth, but we also grew our multi-cultural brands Alberto VO5 and St. Ives.

Now I'd like to make a few comments about the sales of each of our four major brands.

TRESemme completed the year with nearly $500 million in worldwide sales. That represents a significant increase over last year, and more than $400 million higher since the beginning of this decade.

TRESemme continues to generate significant growth in both, our mature and our new markets. Throughout the year, we solidified TRESemme's position as the number one styling brand in the US, while also becoming the number five hair care brand in the US, when tracked in the most recent IRI of 4, 12 and 26-week reporting periods.

We entered a new market with TRESemme in Spain during the year. And while it's still early, our initial results have exceeded our internal expectations. Even when excluding sales in Spain, we still would have generated double-digit organic sales growth for TRESemme in both the quarter and the year.

Now, I mentioned Nexxus earlier, but additional comments. As mentioned consumption trends for Nexxus brand as a whole remained very solid. We are particularly pleased with the success of Nexxus styling products, which are up double-digits over the last 12 and 52-week IRI reporting periods.

We're excited about new innovation and a brand restage that we've planned for Nexxus in 2009, in addition to launching Nexxus in a couple of international markets in 2009.

Alberto VO5 sales increased low single digits on a constant currency basis, as a result of growth in our international markets. In the US, Alberto VO5 net sales were down slightly due to declines in some of the styling products and older treatment products, which were offset by a high single-digit increases in our opening price-point shampoo and conditioner products.

Sales for our St. Ives skin care brands decreased mid-single digits on a constant currency basis due to softness in the US, which as I mentioned was partially offset by double-digit growth throughout Latin America.

Gross profit margin in the fourth quarter increased 30 basis points compared to last year. The improvement was mainly due to more affective inventory management and manufacturing efficiencies, which were significantly offset by higher input costs.

Now, as we disclosed in the financial section of the press release, we reclassified certain freight costs from SG&A to cost of goods sold for all periods presented. Accordingly, following the call, we will post on our website later today, updated consolidated statements of earnings for each of the quarters in fiscal 2007 and 2008, which reflect a reclassification and also present the results of operations related to Cederroth as discounted operations.

Excluding impact of foreign exchange rates, our advertising and marketing investments increased approximately 1% during the quarter, despite going up against a higher than average level in the prior year quarter, a quarter in which advertising and marketing increased more than 45%, compared to the fourth quarter of 2006.

In fact, our investment this quarter was significantly higher than we had originally planned as we took advantage of the momentum we experienced going into the quarter.

Advertising and marketing remains a critical element of our strategy and for the year, we increased that more than $17 million, or nearly 7% to $265 million.

As a percentage of net sales, selling and administrative expenses increased approximately 70 basis points from the prior year fourth quarter, mainly due to three factors; costs related to our planned implementation of a new worldwide ERP system, costs associated with the start up of our Jonesboro, Arkansas manufacturing facility and higher stock-option and other incentive expenses.

Tax at higher spending related to ERP in Jonesboro, as G&A would have been essentially flat compared to the prior year quarter, as a percentage of sales.

Summarizing the strong results and to earnings per share growth, when excluding restructuring on discreet items our diluted earnings per share from continuing operations in the fourth quarter increased 19.2%, to $0.31, and for the year increased 29.7% to $1.18.

Our balance sheet remains very strong, with more than $450 million in cash, cash equivalents, short-term investments. We have no debt and have full access to our $300 million revolver. We are in a very sound financial position, which is a good place to be in today's environment. This provides us with the liquidity to continue to invest behind our brands and continue to evaluate strategic acquisitions in geographies and to buyback shares overtime.

Now let me take a moment and talk about Noxzema, our newest brand. Our team is very excited that we have added Noxzema to the portfolio. Noxzema is an atomic beauty care brand with some of the highest consumer awareness levels in the category.

For some time, we've talked about our desire to expand further into skin care as we see this as a big, big opportunity for Alberto-Culver, it's a large category, that's growing, it's fragmented like hair care, and its prospects for future growth remain extremely good.

Now many of you have speculated under details of the Noxzema acquisition. In the 12 months ending June 30, 2008 net sales were approximately $40 million which does not include significant razor and shave preparation sales that are generated under a third-party license agreement. We acquired Noxzema for $81 million.

In recent years facial sales have been declining, partly due to the lack of advertising investments and focus. However, we do know that consumers think very highly of this brand across a variety of quality and imagery dimension.

Now it's too early to share any specific marketing plans, but we do tend to invest in Noxzema with innovation, advertising and marketing programs to reenergize this brand. We expect the acquisition to be neutral from earnings per share standpoint in fiscal year 2009. Overtime we expect this acquisition will be accretive to both margins and net earnings.

Before taking your questions a few closing comments. This is a difficult time for consumers, and it remains unseen how would all play out. Consumers are being challenged on many fronts. You see it in retail numbers and we see it in our categories.

A year ago the US hair care category was growing in the low single digits, while today it's declining low single digits. Declining category is not good for Alberto-Culver or our competitors and it's something that we watch very closely.

Now, having said that, we believe that we have a strong business model in place at Alberto-Culver; we have terrific brands that are positioned across differing price points and address differing consumer needs; we compete in attractive categories; we're focused on key markets; we have a strong balance sheet and sound liquidity and are fortunate to have a diversified experienced team of employees with tremendous industry and category insight.

As we look ahead to fiscal year 2009, we expect to continue to leverage our strengths to drive sales and earnings growth and outperform the hair care category. We see opportunity to increase operating margins over the next several years, as we leverage Jonesboro, enhance our processes and systems, improve working capital, manage overheads and continue to develop the profitability of our portfolio.

In the short-term, we anticipate continued higher input cost which will pressure our gross margins. We have recently announced some price increases that will be effective January 1st, and along with our cost management initiatives, expect to mitigate these pressures over the course of fiscal year 2009, and improve gross margin.

Our business growth model relies on brand investments. A healthy gross margin provides us the ability to invest behind our brands. We expect advertising and marketing investments to remain at or near 2008 levels on a percentage of sales basis. This, of course, varies by market, by brand, and by quarter. In aggregate, should fall near that range.

Importantly, we will not sacrifice the long-term health of our business and brands for short-term results. Overall, I think we are poised for a solid 2009, in a difficult environment, and have the programs in place to drive strong organic sales growth, outpace the category, continue to capture share and improve margins.

With that, I'd now like to open the call up to any questions you may have.

Question-and-Answer Session

Operator

We have a question from Wendy Nicholson of Citi Investment. Your line is open.

Wendy Nicholson - Citi Investment

Hi.

Jim Marino

Hi, Wendy.

Wendy Nicholson - Citi Investment

How are you?

Jim Marino

Good. Yourself?

Wendy Nicholson - Citi Investment

I'm fine, thank you. Just as we look out towards 2009, the color you gave us on the gross margin was helpful. But if we can back up and look at the revenue line, kind of what you're thinking about for the full year 2009, what's a reasonable base case to think about from a local currency growth perspective.

And then, can you just highlight for us other than the comps which we know for the last four quarters, but in term of whether it's new products or new products or new markets that you are planning to go into with either TRESemme or Nexxus, is there anything that's going to particularly make 2009 uneven from a reported revenue growth perspective?

Jim Marino

Okay, let me see if I can tackle all of that, Wendy. First of all, in terms of overall sales growth, I mean historically, we have been saying that we expect to grow our topline, mid single digit. We're not backing off of that at this point. We still think that remains reasonable with respect to organic growth.

The caution would always be, you know, in some quarters, we are going to be maybe in the low end to below that. In some quarters, we are going to be in high end and above that, depending on our activity, both with respect to our brands and our markets.

So, I just like to caution you on that on a quarter-to-quarter basis. But as we look at '09 and beyond, mid-single percentage growth organically still remains a pretty good estimate. In terms of results being uneven, they are always going to be bit uneven as you've seen this past year. I don't think that's going to change.

We have several new initiatives in fiscal year '09, that will inevitably impact growth from quarter-to-quarter and we'll also be anniversary-ing some things that we did in '08 that will impact our business on a quarter-to-quarter business.

But, overall, we're still bullish. We still think the way we look at the business is direct, the correct way to look at a business. And we feel pretty good about '09, despite the fact that we're in, probably, the worst economic situation that this country and many other countries around the world have been in the long, long, long time.

Wendy Nicholson - Citi Investments

Absolutely. Okay, that's helpful. Thank you. And then just one follow-up question on the SG&A line, the incremental spending that you have in the fourth quarter for Jonesboro and ERP, does the spending associated with those two initiatives continue into 2009?

Jim Marino

I'll let Ralph tackle that one.

Ralph Nicoletti

Wendy, on Jonesboro, on the SG&A side in the first half of the year, we'd expect to see some more costs in that area. On the SAP implementation, I would say, we'd see more in the back half of the year there. So Jonesboro will start to increase its overall return in the back half of '09, and then SAP will have more expenses in the back half of '09 than the first half of '09.

Wendy Nicholson - Citi Investments

Okay. But for the full year, do you think SG&A as a percentage of sales excluding advertising, but just plain old SG&A with those moving pieces, if we are starting to see some of the cost savings roll through as well, do you think SG&A for the full year is about even as a percentage of sales with '08?

Ralph Nicoletti

I would say so. I would say so, maybe get a little bit of leverage from the topline.

Wendy Nicholson - Citi Investments

Terrific. Okay. Thank you so much.

Jim Marino

Anytime Wendy.

Operator

We have a question from Chris Ferrara, Merrill Lynch. Your line is open.

Chris Ferrara - Merrill Lynch

Thanks. Hey, guys. Just wanted to ask about the nature of the decline in the U.S. hair care category, I mean obviously lots of things are slowing, but can you talk about why the U.S. hair care category is down low-to-mid singles? Are we talking more about pantry de-loading and volume declines? Are we talking about trade down? Just want to get some color on that if you can.

Jim Marino

Just to clarify that Chris, it's down 2% in last 12 weeks, probably, been that way for about the last 24 weeks or so, so not mid-single digits, low-single digits. I think it's still speculative as to the nature behind that. As you know, retail traffic is down. And that's probably the biggest reason why hair care is a little bit soft.

Having said that, we are still not seeing a lot of trading down in the category, in fact, if you examine the category over the last 12 weeks, what you find is that the highest growth segment in hair care is the super premium segment, where Nexxus resides. So, it's interesting. We continue to watch it very closely. A lot of hypothesis around what's going on, but I don't think you can point to one thing at this point.

Chris Ferrara - Merrill Lynch

Surely, thanks. Yeah, it does help. Any color helps. So I appreciate it.

Jim Marino

All right then.

Chris Ferrara - Merrill Lynch

If I should one other on the price increases you were just talking about. I mean, obviously, commodities have started to fall off a cliff and you're talking about pricing as of January 1st and some of the stuff we've been hearing, is that a lot of retailers are pushing back a lot more, even if you guys still are in catch up mode. So I guess, what's the degree of conviction that you're to be going successful at pricing as late as January 1, when we've seen commodities fall off as quickly as they have?

Jim Marino

Well, first of all, there is always a lag between commodity pricing and how that actually translates into cost of goods with respect to components here and raw materials. So, the fact is that even with some of the volatility in the commodity pricing, our input costs in this second half of calendar year, '08, so our fourth quarter fiscal year '08, first quarter fiscal year '09, are up significantly versus last year. So, we're seeing some of that.

In terms of pricing sticking, I mean, it's not across the board price increase. It's on certain brands, certain products within them. And we feel comfortable with the steps we've taken. We think we need to take the steps to protect our margins. And overall, we haven't had a lot of pushback.

Chris Ferrara - Merrill Lynch

Okay, thanks. Can you quantify the impact to gross margin for commodities this quarter?

Ralph Nicoletti

Yeah, Chris, it's Ralph. It's not 250 basis points this quarter. And we more than offset that by some of the gross margin benefits that we experience from Jonesboro as well as throughout the rest of the year supply chain. As you saw our inventories were continuing to decline, and that's helped us quite a bit in terms of some efficiencies on cost as well.

Chris Ferrara - Merrill Lynch

Great. Thank you very much.

Operator

The next question is from Nik Modi of UBS. Your line is open.

Nik Modi - UBS

Good morning, guys.

Jim Marino

Hi, Nik. How are you?

Nik Modi - UBS

I am doing all right. Just two quick questions on the VO5 opening price point products in the U.S. Can you just provide some context on what drove the growth, you mentioned there was no trading down, so I just was curious as to why that number looks so healthy?

And then on the second question, you guys obviously have a pretty good financial position at the current moment, while many other companies don't. So, I know you just did an acquisition, but any thoughts on how you look at the acquisition market right now given your position versus some strategic assets out there you might be interested in?

Jim Marino

Sure. With respect to VO5, first of all, the opening price point segment of hair care continues to decline. So, our increase actually was taking share from other folks that are in that same opening price point segment. So, from that aspect, we're not seeing a lot of trade now. As of yet, it will be interesting to see what October consumption looks like because the whole economy kind of fell off the table here October 1st.

So, it will be interesting to see how the four weeks from October 1st to the end of October look. But up until now, we just haven't seen the trading down that maybe one would expect given the economic environment. And so, that's VO5. With respect to acquisitions, we're still bullish, we're very well positioned as you all know, we're sitting on a lot of cash, we haven't tapped our revolver, lots of liquidity, we continue to look at acquisition opportunities, both here in the U.S. and outside the U.S., and we'll continue to do so. So, we feel very comfortable that we could make another acquisition if the right opportunity comes our way.

Nik Modi - UBS

And just quickly on where you see the portfolio gaps. I mean, what intrigues you right now, post Noxzema? What kind of categories are you looking at?

Jim Marino

Well, we still like skin care. We think a very premium skin care equity would fit our portfolio nicely. But we think at this point we can handle another hair care brand too. If you think about opportunities outside the U.S., we're always looking at companies and markets where we currently don't compete, that could potentially provide us with the infrastructure that would enable us to launch our core brands into a new market. So, that's still very high in our list too. So, those are probably the priorities as we look at them in terms of acquisition candidates.

Nik Modi - UBS

Great. Thanks a lot, guys.

Jim Marino

Any time, Nick.

Operator

The next question is from Linda Bolton Weiser, Caris. Your line is open.

Jim Marino

Hi, Linda. How are you? How is the new place?

Linda Bolton Weiser - Caris

It's good. It's good. Can I just ask you a little bit about Latin America, because you did mention that that was one of the drivers of your strong growth? And do you think about what's going on in terms of the devaluations and the turmoil that that could be a problem going forward in terms of growth? And are you seeing it in Argentina, in Chile or is it more Mexico for you in terms of the growth?

Jim Marino

Well, our growth in Latin America is pretty much across the board. We're performing very well. As you'll recall, we launched TRESemme in Latin America, two years ago. And the brand is performing exceptionally well. The St. Ives brand has been performing exceptionally well throughout Latin America. So, we're very excited about that. And we made some of the same changes we made to opening price point VO5 into U.S. in Latin America this past year, and that seems to be playing out real well.

So, across the board our Latin American business has been quite healthy. And quite frankly, most places we do business, the economies are very stable, Argentina is one that if you looked on any of them, it's probably be the most volatile economy of any market that we do business with. And, I think, we've been able to manage that pretty darn well up until now. So, we feel real good about all those markets.

Linda Bolton Weiser - Caris

Okay. Are you able to talk more about that other part of Noxzema that's under a license? Are you saying that you may sort of get rid of that license and take on those sales yourself in which case the sales base would be bigger? And how much sales would that represent?

Jim Marino

We can't tell you that how much that is, other than say, it is a significant piece of business, that is performing quite well; we're excited to have a licensee partner and have no intentions of making any changes there. But it's an area that we'll look at very closely as time goes on and see what other opportunities are available as we work with our partner that's covering that category.

Linda Bolton Weiser - Caris

Okay. And then, just on the gross margin performance. Are you able to say whether mix was a favorable affect on the gross margin in the quarter?

Ralph Nicoletti

Yes. Linda this quarter mix was slightly unfavorable, just the way Nexxus pays through the P&L. And if you'll recall last year in the fourth quarter we had the benefit of very high Nexxus sales because of the entry into the club channel. So, mix was slightly unfavorable this quarter, while we're still able to grow gross margins.

Linda Bolton Weiser - Caris

So, if we think about improvement maybe in the growth rate of Nexxus next year, then mix should become more of favorable thing. Am I correct in thinking that for FY'09?

Ralph Nicoletti

Yes.

Linda Bolton Weiser - Caris

Okay. Okay, that's it. Thank you.

Jim Marino

Thanks a lot, Linda.

Operator

The next question is from Bill Schmitz of Deutsche Bank. Your line is open.

Bill Schmitz - Deutsche Bank

Hey, Good morning guys.

Jim Marino

Hey, Bill. How are you?

Bill Schmitz - Deutsche Bank

Good. Hanging in.

Jim Marino

Start.

Bill Schmitz - Deutsche Bank

Hey, can you just talk about what do you think the currency impact is going to be next year? Because if I flow through some of the slot prices and make some estimates on your country exposure, I'm looking at like negative 6% from currency at these current spot prices hold. So can you just comment if that's directionally right and then how much is translation or how much is transaction? So is there going to be a margin hit from a rapidly appreciating dollar?

Jim Marino

I will let Ralph look in the crystal ball here.

Bill Schmitz - Deutsche Bank

Okay great.

Ralph Nicoletti

Well, Bill, first let me deal with translation versus transaction. On the transaction side, we have very little impact to our cost structure on a transaction basis. There is some, but it isn't that significant to our overall business. So, most all impact would be on the translation side.

I think, directionally, if the markets stay where they are now, you probably just did the math that we would do. Directionally, for the first quarter that's about right. But who knows where the currencies will be further down the road. I would not see it having a significant impact at all on our bottom line, though, just relative to the topline.

Bill Schmitz - Deutsche Bank

Okay. So it is just kind a commentary, passive with like, if it's a 6% decline in currency, it should be 6% decline in EPS, is that directionally correct?

Ralph Nicoletti

No. On the topline on sales, I think you're directionally right on the affect of our growth rate. But on earnings, we have very little effect on the earnings side. So we would not expect it to be that significant an impact.

Bill Schmitz - Deutsche Bank

Well, I'm not sure I understand the offset though. Because if you're translating at 6% then everything kind of go down 6% and your cost structure stays the same, so that translated down six also either offsets to that.

Ralph Nicoletti

Well, you are making the assumption that every -- the mix of sales is the same as the mix of profits in every country.

Bill Schmitz - Deutsche Bank

Got you.

Ralph Nicoletti

Okay. So it's a little less.

Bill Schmitz - Deutsche Bank

I got. So the margins are lower in international markets.

Ralph Nicoletti

Well, certainly in some of the markets where the currency changes have been the most significant.

Bill Schmitz - Deutsche Bank

That's really helpful. Thank you. And then are you guys going to breakout or you can give us historical segment data at some point, so we can build the model accordingly?

Ralph Nicoletti

Yeah. Our plans were to provide that in the K. And then, we'll take a look at whether we want to do that by quarter.

Bill Schmitz - Deutsche Bank

Okay, great. Thanks very much.

Jim Marino

All right, Bill, take care.

Bill Schmitz - Deutsche Bank

Take care, bye. And you too.

Operator

The next question is from Andrew Sawyer of Goldman Sachs. Your line is open.

Andrew Sawyer -Goldman Sachs

Hello, guys.

Jim Marino

How are you?

Andrew Sawyer -Goldman Sachs

I'm pretty good. How are you guys doing?

Jim Marino

Good. Welcome to the call. We are glad to have you on.

Andrew Sawyer -Goldman Sachs

I'm happy to join. I am going to follow-up a little bit on the questions regarding kind of Jonesboro impact not just for the quarter but looking ahead, you guys have given a bit of color about what that could mean here and there. But I was wondering if you maybe give a firmer qualification of what types of potential savings or margin benefits we can get overtime from Jonesboro versus the plants that you guys have shutdown?

Ralph Nicoletti

Well, Andrew in '09, we're going to see is the first half of '09 in Jonesboro, we're still going to be ramping up and having some of the pressure on SG&A costs during the first half of the year, and get some good benefits from the gross margins but we will be at a run rate by the end of '09 than the first half of '09.

So this year, Jonesboro, clearly, even helped our gross margins, but we'll see more next year. I don't want to give you an exact number because this is a plan that we're still kind of moving through quarter-to-quarter and depending on how volumes move and change. I don't what to get this pinned down exactly at this point.

So, rest assure that will be probably at least half to three quarters of the way through our savings on an ongoing basis by the time we end this fiscal year. But it's going to ramp-up as we move quarter-to-quarter.

Andrew Sawyer -Goldman Sachs

Maybe taking a different tack at that, you guys have communicated a 12% operating margin goal and you basically hit that on your fiscal '08. And you have pricing moving your way, I guess, you're commodity is still moving in near term, but maybe coming in a bit longer term, any of the potential plant cost savings. Can you give us any sense? Are we thinking that you can get to a mid-teens type margin over three and five years? Or what's kind of a realistic thinking on that?

Jim Marino

I guess, the way I would think about it is, short-term, there is a lot of volatility out there with respect to input costs, going up and down, up and down. It's been a real roller coaster. I am trying to project that has been very, very difficult for us. And we have a lot of initiatives going on at the same time. Such a mixed bag ongoing in the short-term, I think it's difficult to try to pin that down to an exact number.

If you look at it longer term, we absolutely think we can continue to move our margins upward. I don't know that we're prepared at this point, Andrew, to tell you, yeah, it's going to be x number of points over x number of time. But we feel comfortable that we can continue to improve.

Quite, frankly, we were able to get to where we are today, quicker than we had originally anticipated us. Much of that is because of the success of our business. Quite, frankly, we've over performed and our brands that are contributing to that have over performed. And hopefully, that can continue to be the case.

So, I'm not going to give you an exact number, but, suffice it to say, we do think there is margin improvement out there, and we think we're happy about where we are today. We're lauded quite frankly that we're able to get here probably a year or two sooner, than we originally anticipated, but we're not going to stop here, we're going to continue to move that upward.

Andrew Sawyer -Goldman Sachs

All right, and then, I guess, just a couple other quick little ones. And any chance to give us a little more detail on which brands and products you're taking pricing on January 1st?

Jim Marino

There will be some pricing activity on TRESemme. And to a lesser extent these aren't across the board increases, so be careful with that. But there will be some pricing on TRESemme, and there will also be some pricing on select Nexxus products. And I think that's about it.

Andrew Sawyer -Goldman Sachs

So nothing on VO5 off $0.99?

Jim Marino

Not yet. No.

Andrew Sawyer -Goldman Sachs

Magnitude is those that we're talking mid single, high single digit on the products that are moving?

Jim Marino

While you're probably talking mid, so a little bit beyond that, but in the grand scheme of things, when you roll it all up and you look at it globally, I am sorry, I missed one thing, we always think it's a VO5 pricing outside of the U.S. So that's in there too. But when you roll all that up, you're probably talking in total 200 basis points.

Andrew Sawyer -Goldman Sachs

Okay. And then again on something I don't expect you to give a lot detail on. But you talked a little about launching Nexxus in the couple of international markets, are we thinking things like U.K., Mexico types of places we'd expect to see or is there something more surprising to come?

Jim Marino

I guess, I'm not sure what you guys would expect to see. And what would be surprising but…

Andrew Sawyer -Goldman Sachs

Expect to see it where you have infrastructure, I guess.

Jim Marino

There will be markets where we have infrastructure.

Andrew Sawyer -Goldman Sachs

Okay. Just one final one, in terms of use of cash how does the stock coming down with the market in the last four or five weeks impact your decision on buy backs versus investing against acquisitions?

Jim Marino

It influences both ways. On the one hand the markets been so darn volatile, you almost don't want to be in the market. And so we're watching it very closely. On the other hand, depending on where we end up, we're still authorized to buy an additional I think 5.8 million shares or so. We do have that opportunity and it's one we'll look at very closely.

Andrew Sawyer -Goldman Sachs

All right. Well, thank you so much, guys.

Jim Marino

All right and thanks, Andrew.

Operator

Our next question is from Peter Thompson, COHO. Your line is open.

Peter Thompson - COHO

Good morning. Ralph, I was just wondering if I get a couple of quick cash flow numbers. Do you have your depreciation and capital spending for the quarter?

Ralph Nicoletti

Sure. For the quarter CapEx was $18.8 million for the quarter. And actually about 66 on the year, okay? And then depreciation for the quarter is about $6 million, and that's depreciation and amortization.

Peter Thompson - COHO

Yeah. Perfect. And just for on-share repurchase, I'm going back to my note from the prior quarter, you did then buy a little bit of stock this quarter.

Ralph Nicoletti

Yeah.

Peter Thompson - COHO

Am I right on that?

Ralph Nicoletti

That's right. A little bit up 400,000 shares. So we've bought now 4.2 million shares as Jim just said. But we have an outstanding authorization for an additional 58.

Peter Thompson - COHO

Great. And then, Jim, I probably missed it, but did you give St. Ives the growth rate of how that performed in the quarter? I guess, I couldn't write fast enough there?

Jim Marino

Yeah. Overall, we were off mid single digits and it was all due to softness in the U.S. We actually performed quite well in Latin America and also in Canada. And St. Ives is essentially an Americas brands. We do a little business in Europe and Asia but the vast majority of the business is done in the Americas. And the softness was entirely due to the U.S. and we're obviously working on that.

Peter Thompson - COHO

Got you. Fantastic. Thanks so much.

Jim Marino

Any time, Peter.

Peter Thompson - COHO

Take care.

Operator

The next question is from Connie Maneaty, BMO Capital. Your line is open.

Connie Maneaty - BMO Capital

Hi, good morning.

Jim Marino

Hi, Connie, how are you?

Connie Maneaty - BMO Capital

I'm fine, thanks. Could you discuss what accounts for the margin expansion in the international segment?

Ralph Nicoletti

Well, there's couple of things driving that, Connie. One is inventory management, and another is there is some benefit from our Jonesboro initiative as we announced the closure of our Toronto facility, and we scaled back some of our operations already during the course of this past fiscal year in Puerto Rico. So those results affect the international operations. Those are the big gross margin improvement. And then on the pre-tax margin, beyond those, the international operations were also helped by very strong top-line growth and overheads increase well below the rate of sales.

Connie Maneaty - BMO Capital

Okay. What did currency contribute to your fiscal '08 sales and earnings, because it was positive through the year? So what was that amount, do you know?

Jim Marino

Yeah, we have that here, Connie. If you just give us one second. 1%? Yeah. The total was 1% for the year, Connie.

Connie Maneaty - BMO Capital

That was 1% of sales with positive currency?

Jim Marino

For the year.

Connie Maneaty - BMO Capital

Okay.

Ralph Nicoletti

1%. Yes.

Connie Maneaty - BMO Capital

And what's the other part of that for earnings as well?

Jim Marino

No. Not significant on earnings, Connie.

Connie Maneaty - BMO Capital

Okay. If currency stay where they are, because my calculation was pretty much what Bill came up with, about 6% negative. But if it stays that way for the full year, it has an impact not only on the December quarter but for the whole year. And it turns out to be a number of about a $125 million. That would have been in your 2008 sales, but not in 2009. How is it possible that that doesn't have an earnings impact?

Ralph Nicoletti

Your $125 million sounds awfully high.

Jim Marino

I think that's what, 8.5%?

Ralph Nicoletti

Yeah, our total business outside the U.S. was what? It was about 600 million.

Jim Marino

Yeah probably.

Ralph Nicoletti

So, a $125 million would be 20% of our business outside the U.S.

Connie Maneaty - BMO Capital

Right. We can rerun the numbers, but if you have mid-single digits and x sales growth, and a 5% or 6% currency hit, if currency stay at that rate, then we're looking at reported sales growth of zero plus or minus, whatever the difference is going to be. And on the international side, probably sales declines on a reported basis, does that make sense?

Jim Marino

No, not really. First of all, it only impacts the international volume which is 40% of our total business. So start with that.

Connie Maneaty - BMO Capital

Right.

Jim Marino

And our International business as you saw is growing….

Ralph Nicoletti

17%.

Jim Marino

Yeah, this quarter it grew 17%. I mean, we wouldn't anticipate that kind of growth moving forward, but certainly we continue to look at our international business for significant growth as we look at '09. So you're going to have an impact on the fastest growing piece of our business, which represents about 40% of our total business. So we've to factor it all down.

The U.S. business for the year did grow mid-single digits and we're hoping we can be somewhere in that vicinity in '09. So the numbers don't add up as you had explained them. I mean we can certainly walk you through that offline if you would like, Connie, just to get you a little more comfortable. But it doesn't have as big of an impact as you may have thought.

Connie Maneaty - BMO Capital

And where do you put Canada? Is that U.S. or international?

Jim Marino

That's in our international business.

Connie Maneaty - BMO Capital

Okay. Finally, well, almost finally, have you factored in the possibility of a default in Argentina and what magnitude of sales and earnings that would affect?

Jim Marino

Well, Argentina is not one of our largest markets. So I guess I would start with that. We've been through economic crisis before in Argentina and we've been able to way that way through that. But an economic disaster, if you will, in Argentina would not have a big impact on our total business.

Connie Maneaty - BMO Capital

Okay. One final question. What is the state of your pension plan? In the last 10-K, I don't think we saw assumptions for discount rates and returns on assets? Do you have those?

Ralph Nicoletti

We have a very small plan that is frozen, Connie, and not material to the affects on our business.

Connie Maneaty - BMO Capital

Okay. All right. Thanks very much.

Jim Marino

Anytime, Connie.

Operator

The next question is from Jason Rogers of Great Lakes Review. Your line is open.

Jason Rogers - Great Lakes Review

Hello. I was wondering if you have an estimate or a range for CapEx for '09?

Ralph Nicoletti

Around 60 million to 65 million.

Jason Rogers - Great Lakes Review

Okay. And do you have the cash flow from operations for the quarter or the year for '08?

Ralph Nicoletti

For the year, 166. From continuing operations, there is another $12 million in discontinued ops for the portion that was generated for the period while we owned Cederroth.

Jason Rogers - Great Lakes Review

All right. So that 166 include the 12 or is that--?

Ralph Nicoletti

No, it does not include.

Jason Rogers - Great Lakes Review

Okay.

Ralph Nicoletti

That's just continuing operations.

Jason Rogers - Great Lakes Review

Okay. And the share repurchases you mentioned in the quarter around 400,000. Do you have an average price paid or the total amount you spent for that?

Ralph Nicoletti

I think it was around $25 to $26 average.

Jason Rogers - Great Lakes Review

Okay.

Jim Marino

It's $11 million.

Ralph Nicoletti

$11 million.

Jim Marino

We can do the math for you.

Jason Rogers - Great Lakes Review

Okay. All right, thank you.

Ralph Nicoletti

Okay.

Operator

The next question is from Jason Gere of Wachovia. Your line is open.

Jason Gere - Wachovia

Good morning.

Jim Marino

Hi, Jason, how are you?

Jason Gere - Wachovia

Good, good. A couple of questions, one, I was just wondering if you could talk more about your advertising outlook for next year. I think you said that was going to be at or near '08 levels. I don't want to take you literally, but Noxzema is going to have a step up and I'm sure there is going to be spending behind the Nexxus brand restage.

So, I was just wondering if you could kind of talk about, is this just greater efficiency? Can you just talk maybe a little bit about where you would expect to see more of the spending going into?

Jim Marino

Sure, Jason. First of all what I said was as a percent of sales.

Jason Gere - Wachovia

Right.

Jim Marino

We would probably be in around the same place as we were in '08. In absolute terms, we'll actually be higher in '09 than we were in '08, and that's our expectations going in. And with respect to Noxzema's impact on that, we probably won't see anything on Noxzema until towards the end of the year, because quite frankly, right now, we're in the process of trying to understand the brand, doing a lot of research behind it, trying to figure out where we can take it et cetera, et cetera.

So, you're not going to see appreciable spending behind Noxzema for a bit. So, in terms of its impact on our fiscal year, it probably won't be that much. So, when we say, we're going to increase our advertising and marketing in an absolute terms, our current brands are going to get the impact of that increase much more so than Noxzema.

Jason Gere - Wachovia

No. that clarifies it. And then can you just talk maybe just about the UK market? And again, any change that you've seen over the last month or two, or how much weaker it's gotten just in terms of the magnitude of promotional spending that's still out there?

Jim Marino

Right. It's still a very promotionally intensive environment. We've been actually tracking quite well, both our primary hair care brands VO5 and TRESemme were up double-digits over the last 12 weeks, when you looked at consumer consumption. So, we feel real good about where we are growing, we've taken some additional share there this year, so we feel real good about our efforts. That's promotionally intensive market more so than what you find here in the U.S. a huge percentage of volume is done on deal in the UK. But despite that we've been able to perform very, very well.

Jason Gere - Wachovia

Terrific. And then the last question is probably for Ralph, the housekeeping. Can you just give us a little bit of guidance in terms of the interest income that we should be thinking about this year, I know you still have some auction rate securities in there, but just how we should be thinking about that line item, just with I guess once you pro forma for Noxzema?

Ralph Nicoletti

Well, I guess a couple of things. I don't want to give you a full year forecast on it's because it's a pretty tough thing to do in this market. A couple of factors though; one, overall expected to be lower than this year; one because of the investment in Noxzema. But then also we have moved a lot of our cash into very safe government-backed securities, which are just right now carrying a very, very low rate. And that's a smart move that we've made but there is a cost on interest income for doing that for a period of time, as the markets stabilize, we'll begin to move that money back into money markets and other instruments that carry a higher return.

Jason Gere - Wachovia

Okay. So expect something less than 10 million for the year?

Ralph Nicoletti

Yes.

Jason Gere - Wachovia

Okay. Great. Thank you, guys.

Jim Marino

All right, anytime, Jason. Take care.

Operator

(Operator Instructions). And we do have a question from Jon Andersen of William Blair. Your line is open.

Jon Andersen - William Blair

Good morning.

Jim Marino

Hi, Jon. How are you?

Jon Andersen - William Blair

Well. Thank you. In the quarter, excluding the pipeline into the club channel, would Nexxus have been up in the quarter?

Jim Marino

Yeah. I'm doing this a little bit off top of my head, but it probably represented two or three point swing in total volume, if you wouldn't have the pipeline volume in '07. On an apples-to-apples basis they would have impacted our total U.S. sales probably 2 to 3 points.

Jon Andersen - William Blair

Are there any other comparisons, particularly around Nexxus as we move into fiscal 2009 that we need to aware of, or if you kind of move through that as of Q4?

Jim Marino

I think the Nexxus volume for '08 should be fairly comparable to '07 - '08 actuals. And I can't top of my head thinking of anything that's going to skew it, certainly not to the extent that the club pipeline business skews it this past quarter.

Jon Andersen - William Blair

Terrific, and then just one more question. On the ERP system, can you give us a little more color and this might be for Ralph, kind of, where you are in the implementation of the system, additional investments and what you're expecting from return on investments…

Jim Marino

It's obviously a long-term proposition, we will be going live in the UK with SAP sometime this year, and so lots of learning behind that. And once we have that successfully implemented, we will begin to roll into other markets including the U.S. But certainly before we've got full implementation, we're probably talking another couple of years at least.

Jon Andersen - William Blair

Great. Nice quarter and good luck going forward.

Jim Marino

Thanks, Jon. Take care.

Operator

Mr. Marino, as such there aren't any more questions in the queue. Please continue with any closing remarks.

Jim Marino

I would like to thank all of you for your time this morning. Just to reiterate, we are very, very pleased with our fiscal year 2008 results. We believe our momentum and the strength of our brands will carry forward in the fiscal year '09. And if you have additional questions, always feel free to give us a call, we like to make ourselves accessible as best we can. So, thank you all again for participating. And we're looking forward to a very, very, very strong 2009. Thank you.

Operator

Thank you, Mr. Marino. I'd like to mention that a replay of this call will be available for 30 days beginning this afternoon. The calling numbers are 800-642-1687 or 706-645-9291. Please enter ID code 67301132.

This concludes the conference call. Thank you and have a good day.

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