Shares of Revlon Inc. slumped nearly 17 per-cent, and hit a new 52-week low, following its disclosure Thursday of a 72.3 percent drop in fourth-quarter profits, but the cosmetics firm, boosted by a one-time gain from the sale of an asset, managed to finish the year in the black.
This story first appeared in the February 13, 2009 issue of WWD. Subscribe Today.
For the three months ended Dec. 31, Revlon’s profit was $11.3 million, or 22 cents a diluted share, versus $40.8 million, or 80 cents, in the year-ago period. Per share amounts have been adjusted to reflect the firm’s 1-for-10 reverse stock split of Class A and Class B common stock in September 2008. Operating income fell to $44 million from $79.3 million, with the decline driven by increased advertising costs to support new product launches.
Sales for the quarter fell 10.5 percent to $334.2 million from $373.3 million. In the U.S., sales fell 7.5 percent to $199.6 million from $215.8 million. Gross margin declined 40 basis points to 62.2 percent of sales from 62.6 percent in the year-ago quarter.
International sales declined 14.5 percent to $134.6 million from $157.5 million, which the company said was “entirely due to unfavorable foreign currency fluctuations.” Excluding the currency impact, sales outside the U.S. were essentially flat, inching up 0.2 percent as higher sales for Revlon and Almay color cosmetics were offset by declines in hair care and fragrance.
Shares of Revlon finished the New York Stock Exchange session at $3.75, off 76 cents, or 16.9 percent. Before the close, they set a new 52-week low of $3.70. Their 52-week high, set two weeks after the reverse split on Sept. 30, was $14.85.
For the year, profit was $57.6 million, or $1.13 a diluted share, against a loss of $16.1 million, or 32 cents, in 2007. Results in 2008 includes a $45.2 million gain on the sale of discontinued operations. Sales were down 1.5 percent to $1.35 billion from $1.37 billion.
“Overall during the year, we improved our operating margins, generated positive free cash flow and net income from continuing operations and improved our capital structure by reducing debt by $110 million,” said David Kennedy, president and chief executive officer, during a conference call to Wall Street analysts.
He also noted growth in the Revlon brand in the face segment was driven by three product launches in 2008: Revlon ColorStay Mineral Foundation, Revlon Custom Creations Foundation and Revlon Beyond Natural Makeup.
Alan Ennis, chief financial officer, noted that “increased net sales of Revlon brand color cosmetics were offset by declines in net sales of Almay.”
Kennedy told WWD that “Almay, overall, is a healthy brand,” and will have product launches in the face and eye segments during 2009.
“If we cut through all of the things that cloud the results, mass market color is still growing,” said Connie Maneaty, analyst at BMO Capital Markets. “Sales at mass are better than at department stores or even at direct [to consumer]. Revlon gained market share in categories where they put advertising money, such as face, which rose nicely. The brand is holding its own and gaining where they have a story to tell and tell the story. As for Almay, it is a profitable brand.”
The company had an $168.6 million borrowing capacity at the end of last year, comprising $126.8 million available under its revolving multicurrency facility and $41.8 million of cash and cash equivalents. Revlon does not have any debt maturing in 2009.
Ennis did note on the call that cash contributions to the pension and post-retirement plans in the new year will be $25 million to $30 million, compared with $12.8 million in 2008, with the impact due in part to the declines last year in the financial markets in the U.S. and around the world.