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Revlon Returns to Black in Quarter

Revlon Inc. reversed year-ago losses in the second quarter thanks in part to better sales from both its U.S. and international divisions.

Revlon Inc.’s buttoned-up, head-down approach to righting its business has begun to click, as the beauty firm reversed year-ago losses in the second quarter.

Like its industry peer, Avon Products Inc., Revlon has rolled up its proverbial sleeves to resuscitate its business with a steady focus on profitable sales growth.

“Our foremost priority is building our strong brands, particularly the Revlon brand,” chief executive officer David Kennedy said during the company’s earnings call. Following the call, he told WWD, “We’ve stayed focused on the drivers of profitable market share growth…and we are just beginning to see the outcome of that strategy.”

the call, he told WWD, “We’ve stayed focused on the drivers of profitable market share growth…and we are just beginning to see the outcome of that strategy.”

For the second quarter ended June 30, Revlon’s domestic and international sales growth resulted in a net profit of $19.9 million, or 4 cents a diluted share, compared with a net loss of $11.3 million, or 2 cents a share, in the year-ago period. Sales gained 7.8 percent to $376.4 million from $349.2 million, bolstered by higher shipments of Revlon color cosmetics and the sell-in of the company’s second-half lineup to retailers.

U.S. sales for the company gained 6 percent to $216.4 million in the quarter. The firm’s international performance continued to be a bright spot, rising 10.3 percent to $160 million.

For the first half, earnings totaled $17.4 million, or 3 cents a share, compared with losses of $46.5 million, or 9 cents in the prior-year period. Sales inched up 2.8 percent to $696.8 million from $677.8 million.

On Monday, Revlon said it had sold its Bozzano brand, a men’s hair care and shaving line sold in Brazil, to Hypermarcas SA, a Brazilian consumer products company, for $104 million in cash. Net proceeds from the sale, after taxes and transaction costs, are expected to total $94 million. The company said it is evaluating the most appropriate use of the net proceeds from the transaction.

Kennedy’s practical approach relies on a rolling, three-year new product plan that’s nimble enough to respond to trends while expanding upon existing innovations.

He noted that, for the first time in several years, Revlon has unveiled a competitive lineup for the second half, which includes about twice the amount of Revlon color cosmetics than the company introduced in the second half of last year.

Kennedy acknowledged that the product pipeline has been quiet over the last several years, but promised a more robust second half.

“In the back half of 2008, we’re going to have a more extensive lineup than in the second half of last year,” said Kennedy. (See related story below on Revlon’s upcoming launches.)

Profitable growth is top of mind, but the company is quick to point out that it will not sacrifice advertising support to achieve profitability. Kennedy listed new products, competitive advertising and promotional spending and superb execution at retail as key drivers of growth.

After nearly two years of working to stabilize the business, Revlon seems to be having some success, particularly with products it launched in the first half of this year, said SunTrust Robinson Humphrey analyst William Chappell. He noted that Revlon’s U.S. sales growth of 6 percent outpaced category sales in the mass channel, which, according to ACNielsen, grew 4.4 percent in the quarter. Chappell also said the expanding ranks of cost-conscious consumers may have helped the company’s top line. “Revlon sales growth benefited from good transit in mass cosmetics,” said Chappell.

The company also has added new celebrities to the fold, signing Academy Award-winning actress Jennifer Connelly and model Elle Macpherson to front Revlon, and actress Leslie Bibb for Almay. They join Revlon brand spokeswomen Halle Berry, Jessica Alba and Beau Garrett, and on the Almay side, Elaine Irwin-Mellencamp and Marina Theiss.

Kennedy said Revlon’s star stable gives the brands a more breakthrough look in its advertising. “Having the right spokespeople in our ads is a competitive advantage,” he said. Commenting on how Revlon chooses its celebrity spokeswomen, he said: “Their look, personality and persona all have to fit with the Revlon and Almay brands.”

But the halo of celebrity has yet to improve the company’s market share, which has stubbornly remained at 2006 levels. During the quarter, Revlon’s share of mass market color cosmetics in the U.S. slipped 0.3 percentage points to 13 percent, compared with the year-earlier period, according to ACNielsen data, provided by Revlon. Almay’s share dipped 0.4 percentage points to 5.7 percent.

Kennedy maintained that Revlon has gained traction with its new product entries, including Revlon ColorStay Minerals and Almay Smart Shade blush and bronzers.

Reflecting on the company’s strategy, which Kennedy implemented in late 2006, he said: “In a manner of speaking, it has not been that long since we began this strategy. There is still room for improvement.”