By  on February 29, 2008

Revlon Inc. marched toward profitability last year as it kept a tight grip on costs and trimmed head count. Now, industry watchers are waiting to see if the beauty firm's new product pipeline will reignite market share, which has stagnated over the last several years.

For the fourth quarter ended Dec. 31, cost controls and sales growth resulted in a net profit of $40.8 million, or 8 cents a diluted share, compared with a net loss of $5.5 million, or a penny a share, in the year-ago period. Sales ticked up 1 percent to $382.6 million from $378.9 million.

For the year, Revlon's net loss narrowed to $16.1 million, or 3 cents a share, from a loss of $251.3 million, or 60 cents, on sales that gained 5.2 percent to $1.4 billion from $1.33 billion.

Following the company's earnings call Thursday morning, Revlon president and chief executive officer David Kennedy told WWD: "The results are very good in terms of where we came from, and they are the best results this company has had in years."

When asked how the beauty firm plans to grow its brands this year, Kennedy said: "It's our intention to grow our market share profitably," referring to Revlon and Almay's market shares as "stable." The effort, he explained, includes a consistent spate of new launches and a carefully managed product portfolio.

Kennedy impressed that Revlon has a strong product pipeline in place for this year. For the first half, the lineup includes two major face launches, namely Almay TLC Truly Lasting Color and Revlon ColorStay Minerals, which will be fronted by Halle Berry. Despite Berry's newly inked fragrance deal with Coty Inc., Kennedy said the actress — who has been a Revlon spokesmodel since 1996 — is still under contract with the company. (See related story below.)

"Revlon has done what it said it would do — cut costs and improve profitability," said William Chappell, an analyst with SunTrust Robinson Humphrey. "It's too early to tell if its new products will help the brand gain market share."

Referring to the launch of Revlon ColorStay Minerals, he said: "Stuff like mineral-based products makes Revlon seem late to the game." Chappell — dubbing 2007 a transition year for Revlon as it untangled itself from the Vital Radiance fallout — said the challenge for the beauty firm this year will be proving that the company can grow its brands.

For the year, Revlon's share of the mass market color business was about 13 percent, down from 14.1 percent in 2006 and 15.3 percent in 2005. Almay's share has stubbornly remained at around 6 percent, on par with its share prior to the brand's overhaul in 2006.

Kennedy said, "You can trace that share loss back to the strategy that we had in place for 2005 and 2006," which — under his predecessor, Jack Stahl — focused on launching the now defunct Vital Radiance brand, revamping Almay and introducing refreshed product lines.

Kennedy said the firm plans to introduce more new products backed by increased advertising later this year, as it extends marketing support for existing products.

Revlon began shipping its first-half 2008 launches to retailers in late November, and first flipped the switch on brand support late last month. The company expects to sees a sales lift from the new lineup in the spring.

In the most recent quarter, Revlon's U.S. sales declined 5 percent to $215.8 million from $227.1 million in the year-ago period, dragged down by $4.7 million related to Vital Radiance and a higher sales return expense. On the International front, sales in the quarter gained 9.9 percent to $166.8 million from $151.8 million, boosted by a favorable foreign currency exchange.

Kennedy reiterated Revlon's target of midsingle-digit sales growth.

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