By  on March 2, 2006

NEW YORK — Revlon is beginning to reap the rewards of a more robust product pipeline.

"Our strategy to reenergize important franchises while simultaneously developing new products is working," said Rev­lon president and chief executive officer Jack Stahl as the company posted fourth-quarter profits that surged 39 percent.

"I recognize we still have a good deal of work to do, but we are clearly moving this company forward in a positive direction."

On Wednesday, the New York beauty firm posted net income for the period ended Dec. 31 of $64.3 million, or 17 cents a diluted share, from $46.2 million, or 12 cents a share, in the year-ago period. Revlon's sales for the quarter increased 16 percent to $437.8 million from $378.3 million.

Revlon worked to cut costs in the quarter, eliminating 165 jobs, primarily from its marketing, sales and North American finance functions. The company expects to take a $10 million charge related to severance and additional expenses, the bulk of which will affect its first-quarter results. Revlon expects its strategy will generate ongoing annual savings of $15 million, most of which will benefit 2006.

"We believe this effort will significantly improve our overall effectiveness and have a positive impact on our margins over time," said Stahl.

A 3 percent uptick in cosmetics category growth in 2005, according to ACNielsen data, coupled with the rollout of Revlon's cosmetics brand for mature women, Vital Radiance and the Almay restaging, powered sales growth in the quarter. The sell-in of Vital Radiance and Almay pushed North American sales up 22 percent to $306 million from $251 million in the year-ago period.

Stahl said retailers have showed their support for Revlon's two most ambitious launches, Vital Radiance and Almay, by allotting the company a 23 percent increase in shelf space, down slightly from its previously stated goal of 25 percent.

"In terms of our bullishness about retailers' support of our businesses, the change has absolutely no impact," said Stephanie Klein Peponis, executive vice president and chief marketing officer for Revlon. She added that retailers took space away from Revlon's competitors to make room for its 2006 initiatives.Last year, the firm invested $62 million in start-up costs associated with Vital Radi­ance and Almay. Revlon expects to see the spoils from its cranked-up product pipeline in the second half of 2006.

Revlon's plans to enter the prestige fragrance market may have many industry watchers scratching their heads, but the company reiterated that the move fits into its mission to drive profitable growth.

"It's the perfect place for Revlon to play in," said Peponis.

In January, Revlon announced it had entered a multiyear deal with Gemini Cosmetics Inc. to reenter the prestige fragrance channel after more than a decade's absence. The pair this summer will launch the first fragrance, which industry sources said will be called Flair. Sources also said Revlon has signed Bra­zilian model Isabeli Fontana, who has previously appeared in ads for Versace's Crystal Noir fragrance, as spokesperson for the scent.

"Revlon's moving into the category modestly with one fragrance," said Bill Chappell, an analyst with SunTrust Robinson Humphrey Capital Markets, adding that Gemini likely shoulders most of the risk for the venture.

Revlon's international sales rose 4 percent in the quarter to $132 million from $127 million. Excluding the unfavorable impact of currency exchange rates, international sales increased 7 percent.

For the year-end period, Rev­lon's loss narrowed to $83.7 million, or 23 cents, from a loss of $142.5 million, or 47 cents a share, in 2004, while sales rose nearly 3 percent to $1.3 billion, aided by Vital Radiance and Almay. Revlon said partially offsetting these benefits were continued softness of color cosmetics collections due for a revamp and an $11 million reduction in licensing revenue.

North American sales came in flat at $857 million, compared with sales of $856 million in the previous year. Even though Revlon swallowed $44 million in product returns associated with its 2006 launches, the new initiatives resulted in $33 million in net sales.

For the year, international sales rose 8 percent to $475 million. The positive effect of currency exchange rates added two points of the growth.

Having secured shelf space for its two most ambitious launches this year, Revlon will continue to revamp existing franchises. Next up is the 12-year-old ColorStay franchise. Revlon has begun rolling out a new range of ColorStay foundations, pressed powders and concealers, and while the firm would not comment on sales expectations, industry sources expect the refreshed products to yield more than $100 million in first-year retail sales.Revlon's beefed-up presence along the beauty wall is a sign of progress, said Stahl. He added, "We believe this to be a significant accomplishment. It reflects ever stronger relationships with our retail partners, and sets the stage for what we expect will be strong growth for the company."

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