By  on November 4, 2005

NEW YORK — Despite absorbing the negative financial impact of product returns to prepare for its two most ambitious initiatives for 2006, Revlon Inc. narrowed its loss in the third quarter.

During a call with analysts Thursday, Revlon president and chief executive officer Jack Stahl revealed additional details about its 2006 plans, which include the overhaul of Almay and the introduction of Vital Radiance, a new brand that targets women over 50. (See related story.)

The beauty firm reported a net loss of $65.4 million, or 18 cents a diluted share, wider than Wall Street's expectations, from a net loss of $91.6 million, or 25 cents a diluted share, in the year-ago period. Revlon credited the improvement to refinancing activities during the quarter. Sales for the period dipped 6 percent to $275.3 million from $294.4 million a year ago. Results include $32 million in product returns associated with the launch of Almay and Vital Radiance.

The company's investment in new products for 2006 was reflected in North American sales, which fell 17 percent to $159 million from $192 million a year ago. International sales gains partially offset the decline. Shipping strides in Asia Pacific and Latin America, as well as favorable currency translation, fueled net sales 14 percent to $117 million from $102 million a year ago.

"We have confidence that these two brand initiatives will be important building blocks," said Stahl, adding that the company will continue to revamp existing franchises to bolster Revlon's growth. Having already restaged SuperLustrous, its nail care portfolio, and Age Defying, the company will relaunch Revlon's ColorStay franchise this spring, replete with new packaging and an enhanced formula.

The entrance of Almay and Vital Radiance will increased the company's retail footprint by 25 percent in 2006, said Stahl. The company expects the two initiatives to yield $30 million to $40 million in manufacturer sales in 2005 (down from the company's previous estimate of $50 million).

Revlon anticipates the upfront cost of the launches will total $75 million for 2005. That total, of which $44 million impacted the company's results so far, includes $10.2 million for display fixtures, $25 million for staffing and marketing activity and $40 million in product returns and allowances. Revlon expects to spend $85 million to $95 million for permanent displays next year.Bill Chappell, an analyst with SunTrust Robinson Humphrey Capital Markets, said while Revlon did have some challenges this quarter, given the cost of the two initiatives, the increased shelf space likely will offset those costs.

"If retailers are allocating that much shelf space, they must see something they like," said Chappell.

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