Rising commodity costs contributed to a 12 percent drop in quarterly profits at Procter & Gamble Co.’s beauty unit, while tax expenses held back Revlon Inc., which just barely broke even for the period. Both companies are seeing signs of the macroeconomic funk that has the beauty industry and businesses in general on edge.
This story first appeared in the October 28, 2011 issue of WWD. Subscribe Today.
“In terms of consumer spending, we really don’t see much difference today versus what we’ve been seeing since about 2008, which is in the developed markets, you have a bifurcation,” said Jon Moeller, chief financial officer at P&G. “You have on the high end, people with their incomes continuing to expand, growing very strongly and continuing to spend on premium products.…On the other end, you’ve got the people who are unemployed or seeking employment and they continue to find ways, try to find ways to cope.”
At P&G’s beauty unit, investments to expand the business, as well as higher commodity costs, drove first-quarter earnings down to $731 million despite a 9 percent rise in sales to $5.4 billion for the quarter ended Sept. 30.
Price increases for the quarter accounted for 2 percentage points of net sales growth and currency exchange another 6 percentage points. The company said volume in prestige products rose by double digits, driven by the Gucci, Hugo Boss, Lacoste and the SK-II brands.
“Beauty is continuing to make investments to support geographic expansions and to drive growth behind product initiatives,” the firm said. “These investments have led to good results in developing markets and in categories such as retail hair care and prestige.”
At Revlon, third-quarter net income sank to $100,000, or nil on a per share basis, from $12.5 million, or 24 cents, a year earlier. Profits were pulled down during the quarter by $22.1 million in income tax expense.
Sales for the quarter ended Sept. 30 rose 5.7 percent to $337.2 million from $319 million. The top line rose 3.6 percent excluding currency fluctuations.
Sales in the U.S. jumped 10.8 percent to $184.7 million, driven by sales of Revlon color cosmetics, Revlon ColorSilk hair color and the addition of Sinful Colors, a nail business acquired in March. The firm pointed out that U.S. sales grew excluding the addition of Sinful. On a global basis, Almay sales were flat.
“From a macroeconomic standpoint globally there remains significant uncertainty.…Recovery is far from certain,” said Alan Ennis, president and chief executive officer of Revlon.
In the Asia-Pacific region, Revlon’s net sales rose 6.4 percent to $58 million. Excluding currency fluctuations, sales decreased 2.4 percent, primarily due to lower net sales of Revlon color cosmetics in Japan and Australia, partially offset by higher net sales of Revlon color cosmetics in China.
Sales were flat at $51.1 million in Europe, the Middle East and Africa, or down 2.8 percent excluding currency changes.