Elizabeth Arden, Inc. (NASDAQ:RDEN)
Q4 2016 Results Earnings Conference Call
August 10, 2016, 04:30 PM ET
Scott Beattie - Chairman and CEO
Rod Little - EVP and CFO
Greetings and welcome to Elizabeth Arden's Fourth Quarter 2016 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, [Indiscernible] of ICR. Thank you. You may begin.
Unidentified Company Representative
Good afternoon and thank you for joining us. Before we begin, I'd like to remind you that some of the comments made on this call, as these are prepared remarks or in response to your questions, may contain forward-looking statements that are made pursuant to the Safe Harbor Provision of the Securities Litigation Reform Act of 1995.
Such information is subject to risks and uncertainties that could cause actual results to differ materially from the statements as described in the press release and in Elizabeth Arden's most recent Annual Report on Form 10-K filed with the SEC.
If non-GAAP financial information is provided on this call, a reconciliation of the non-GAAP information to the most comparable GAAP financial measure is available in our press release.
I would now like to turn the call over to Scott Beattie, Chairman and CEO of Elizabeth Arden. Scott, please go ahead.
Thank you very much and good afternoon and welcome everyone to our fourth quarter fiscal 2016 and year end conference call. With me today are Rod Little, our Executive Vice President and CFO, and Marcey Becker, our Senior Vice President of Finance.
For today's call, Rod is going to begin by providing a detailed review of our operating performance, financial metrics, as well as a detailed update on our performance against our key strategic priorities driving our business plans. Rod will then turn the call over for me -- to me for some additional remarks.
Before I hand it over to Rod, I'd just like to remind everyone of our last call in early June, where we announced the signing of the merger agreement with Revlon. And at that time, our objectives were one, to finish our 2016 fiscal year with excellence; two, to continue to manage our business transformation projects and build on our improved business momentum so that we delivered the business to Revlon with excellence; and three, to complete the work required in order to close the transaction as quickly as possible, thereby minimizing disruption to either our business or to the Revlon business.
As a result of that, we accomplished each one of those three objectives. Rod will discuss the performance of fiscal 2016 in more detail, but I'm extremely proud that we've exceeded our cost savings targets, while at the same time are currently experience accelerated growth in both the Elizabeth Arden brand and our international business. We expect that momentum to continue and we're experiencing that in the early part of fiscal 2017.
In terms of the Revlon transaction, much of the regulatory and legal work has been completed, including the mailing of our proxy statement and we have scheduled a shareholder's meeting for September 7 to approve the transaction.
Our organization has performed extraordinarily well during this past fiscal year and particularly, over the last two months given the immense workload. And I'd like to thank everyone for their hard work, perseverance, and commitment to the excellence and professionalism of our business.
I'd now like to turn the call over to Rod, our CFO, to provide a more detailed review of our performance.
Thank you, Scott and good afternoon everyone. We ended fiscal 2016 on a strong note, executing on our key priorities of growing sales on a more sustainable and profitable basis and building our key brands.
The work we've undertaken through the various initiatives over the last two years is reflected in our results, both on topline sales as well as in our profitability and earnings metrics.
In particular, the Elizabeth Arden brand and the international segment posted growth on a constant dollar basis for the sixth consecutive quarter and our North American business was up for the second consecutive quarter.
Gross margin increased by 620 basis points in the quarter and full fiscal year adjusted gross margin increased by 210 basis points versus the prior fiscal year. Finally, our overhead cost reductions came in ahead of plan as we realized better than expected savings from our cost restructuring program.
And now, a brief update on the five key strategic priorities for the business, which remain unchanged as we work towards the closing of the transaction with Revlon. Priority one, drive the Elizabeth Arden brand. Net sales of the Arden brand accelerated again in the quarter and were up 14% at constant foreign exchange. This is on top of a 5% net sales increase for the third fiscal quarter.
We're also pleased that the growth this quarter was broad based across all three categories of the brand. For the quarter, Elizabeth Arden skin care sales rose 12%, color cosmetics rose 31%, and fragrances grew by 12%. By market, the Elizabeth Arden brand was up in virtually every market, including a net sales increase of 31% in North America and 8% in international.
Our innovation continues to perform well. We recently launched Prevage CitySmart, a breakthrough anti-pollution and antioxidant skin care product in several impactful color cosmetics launches. Elizabeth Arden fragrances continues to perform well, with the Fifth Avenue and Green Tea both up for the quarter and the full fiscal year.
Looking forward, we continue to be encouraged by the performance of the Arden brand, due to the rich innovation pipeline, our digital capabilities, and our improved execution across all channels, including e-commerce.
Priority number two, grow key pillar fragrance brands. The investments we are making in our priority fragrance brands has resulted in consistent growth for these brands. Overall, non-Arden fragrance net sales were down 5% in the quarter at constant rates, but down only 3% when you exclude distributed fragrance brands.
Designer fragrances grew 5%, including the John Varvatos fragrance brand, which increased 6% on top of posting a double-digit net sales increase in the third quarter. For the year, John Varvatos fragrances were up 25%. The House of Juicy also increased this quarter, up 5% on top of a 16% increase in the third quarter.
Heritage fragrance brands continue to perform in line with plan, with growth in White Diamonds, Curve, and the Giorgio fragrance brands. While down this year, we're excited about the global launch of the new Britney Spears fragrance, which just recently launched and is off to a strong start.
We're also excited about the addition of the Christina Aguilera brand, which we recently acquired and added to our Heritage portfolio. This brand has strong market share in Germany and we expect this to further leverage our international infrastructure.
Strategic priority number three, improve go-to-market execution and capability. We continue to see the positive results of the significant changes implemented over the last two years to improve our global distribution and selling capabilities as evidenced by the international segment posting its sixth consecutive growth quarter.
The consolidation of our total Asia business, new leadership in China, and Latin America, were the last tenants to the completion of the international structure and we are confident that our go-to-market structure is proving to be capable and effective.
Our European, Middle East, Africa region continues to grow, with net sales up 11% in fiscal 2016 at constant foreign exchange, primarily behind strong results on the Elizabeth Arden brand.
We saw broad based growth across many markets this past year, with the best performing markets in order, the Middle East up 54%; Germany up 39%; France up 24%; the U.K. up 14%; South Africa up 13%; and Spain up 6%.
We continue to see good results across the Asian markets, including Korea up 83%; China up 23%; New Zealand up 12%; and Australia up 7%. Finally, Latin America was down 28% in the year, primarily due to macro-economic issues in Brazil. But we have new leadership in place and we're confident that we will see this business begin to respond positively like the other international markets.
Priority number four, optimize costs and reduce complexity to drive margins. Our focus on simplifying our business model and improving product mix to increase margins is reflected in our results.
Our gross margins improved this fiscal year by 210 basis points to 45.1%, despite negative foreign exchange headwinds. We were also ahead of plan on our indirect overhead spending objectives.
We delivered an estimated $51 million of annualized savings over the past two years, which was above the high end of our initial targeted cost savings range of $40 million to $50 million.
Strategic priority number five, attract, retain, and develop strong employee talent. The organization has worked very diligently over the last few years to put the company on its current growth and margin improvement path.
Driving the turnaround in a difficult environment has been challenging, but we're proud of our accomplishments with people from all over the world and at all levels working to ensure we would ultimately succeed in returning to growth and building back profitability.
Lastly, a little more color and a brief discussion of our key metrics results for the quarter and the fiscal year. Overall net sales on an adjusted basis were up 3.6% for the quarter and 0.6% for the year at constant currency.
On an adjusted basis, gross margin increased by 620 basis points for the quarter and 210 basis points for the year, driven primarily by lower gross to net sales solution and improved product and customer mix.
Recurring indirect SG&A overhead expenses came in below budget than prior year due to our cost restructuring program and tight cost control. For the quarter, total indirect expenses declined by 5% or 8% ex-foreign exchange and by 410 basis points as a percentage of net sales. For the year, these expenses decreased by 9%, 5% excluding foreign exchange and by 180 basis points as a percentage of net sales.
Turning to the balance sheet, we ended the quarter with $67 million outstanding on the credit facility, cash of $45 million or net short-term debt of $22 million. Accounts receivable days sales outstanding were 43 days and we ended the quarter with inventory of $241 million, which was flat to the prior fiscal year end levels for inventory.
Finally, capital expenditures totaled $12 million for the full fiscal year.
With that, I would like to turn the call over to our Chairman and CEO, Scott Beattie.
Thanks very much Rod. This will likely be our last earnings call as a public company. And after 20 years of being public and more as the CEO of this company, I'd like to thank all of our shareholders, our bondholders, our Board of Directors, and most particularly, all the people that I've had the pleasure to work with to build this business.
In both good times and challenging times, the people of this company have had the creativity, the perseverance, and the passion to drive for success. From the bottom of my heart, I thank all of you for being part of this company's history and its future success with Revlon.
Thanks very much. Operator?
End of Q&A
Yes. This does conclude today's conference. Thank you for your time and your participation. You may disconnect your lines at this time and have a good day.
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