By  on February 25, 2010

Revlon Inc. seems to have found equilibrium in a precarious balancing act: trumpeting glamour and celebrity-backed innovation while strengthening the balance sheet.

Now the beauty firm, which is 79 percent owned by Ronald Perelman, faces the tough task of maintaining and growing its market share against the likes of Procter & Gamble Co. and L’Oréal.

Revlon clearly has made strides compared with a few years ago, when the firm seemed to be bleeding red. The company on Thursday said fourth-quarter profits rose 13.3 percent on higher sales and lower expenses.

“We’re a much healthier company today than we have been in the past,” Alan Ennis, president and chief executive officer, told analysts during the firm’s earnings call Thursday. “The opportunity for us now is with our existing asset base to take the core brands that we have and find opportunities to grow those brands, both with our existing customers and in new distribution and geographies where they don’t exist today.”

To control costs and improve profitability, while maintaining an aspirational, star-studded image in the eyes of consumers, the firm has learned to do more with less.

“Over the last three years we’ve taken a lot of redundant costs out of the organization,” Ennis told WWD, citing Revlon’s moves to reduce layers of management and implement more efficient and forward-looking processes.

“Three years ago we had 6,000 employees; today we have 4,800 and we haven’t missed a beat.”

Among those cost cutting moves are lower marketing spending, despite its stable of Hollywood stars as spokeswomen. Revlon decreased its advertising spending to about $230 million in 2009, from about $260 million in 2008. The company emphasized it spent less on advertising, but increased its media presence, as it was able to negotiate lower advertising rates and media production costs.

Revlon’s roster of celebrity spokeswomen is deep, and includes Halle Berry, Jessica Alba, Jessica Biel, Jennifer Connelly, Beau Garrett and Elle Macpherson, and, for Almay, Elaine Mellencamp.

But new products fronted by Hollywood’s finest have yet to jump-start the company’s market share growth.

The company’s dollar share in the U.S. mass market for its two cosmetics lines, Revlon and Almay, remains largely unchanged for the year. Revlon was flat at 12.7 percent and Almay moved to 5.4 percent, from 5.9 percent in the prior year, according to ACNielsen data provided by Revlon, which excludes Wal-Mart. During the earnings call, Revlon said Wal-Mart represents about one-third of its U.S. business.

The Revlon brand made some gains in the fourth quarter, growing 6.1 percent in dollar volume, resulting in a 12.6 percent share, compared to 12.2 percent in the year-ago period. Almay dollar volume declined 9.8 percent in the quarter to 5.2 percent from 5.9 percent in the prior-year period.

Revlon continues to introduce new products — the engine of any cosmetics firm — fronted by a celebrity spokesperson. For instance, ads for the brand’s newest foundation, PhotoReady Makeup, feature the company’s longtime spokeswoman Berry, and Alba appears in the ad campaign for ColorBurst Lipstick. Both PhotoReady Makeup and ColorBurst respond to current beauty trends, including the beauty products suited for high-definition TV and different types of lighting and prestige positioning. The ColorBurst lipstick bullet is embossed with the Revlon brand name, just as Chanel’s latest lipstick, Rouge Coco Hydrating Creme Lip Colour, is imprinted with Chanel.

“Revlon has established themselves as the brand in lip. It’s gone back to its legacy,” said BMO Capital Markets analyst Connie Maneaty, noting competitor Cover Girl is strong in the face makeup category while rival and L’Oréal Paris’ strength is in eye makeup.

“It takes a long time to get the operation to a point where they want it. Revlon has the right organization in place and controls over their costs,” said Maneaty, adding she was encouraged by Revlon’s 15 percent operating margin.

New product accounts for roughly 15 to 20 percent of the company’s revenues, said Ennis.

The company also looks to past launches for inspiration. Its upcoming Almay Smart Shade Anti-Aging Makeup builds on the 2006 introduction of Almay first introduced the SmartShade.

Referring to the firm’s product pipeline, Chris Elshaw, executive vice president and chief operating officer, said, “It’s a combination of extending core franchises and tapping into new technology. You have to do both.”

For the period ended Dec. 31, the beauty company’s net rose to $12.8 million, or 24 cents a diluted share, from $11.3 million, or 22 cents, a year earlier. Income from continuing operations totaled $12.8 million, or 25 cents a diluted share. Sales for the quarter advanced 3.1 percent to $344.6 million from $334.2 million.

Quarterly selling, general and administrative expenses fell to $157.2 million from $160.8 million.



In the U.S., net sales in the quarter were down 6.3 percent to $187 million, hampered by lower sales of Revlon and Almay cosmetics, as well as Mitchum deodorant. International sales gained 17.1 percent to $157.6 million, driven by favorable exchange rates and gains in the Latin America region, which were partially offset by lower sales in Europe. Sales in Asia-Pacific were flat.

For the full year, Revlon’s net earnings declined 15.7 percent to $48.8 million, or 94 cents a diluted share, from $57.9 million, or $1.13 a share the prior year. Income from continuing operations totaled $48.5 million, or 94 cents a diluted share. Sales decreased 3.8 percent to $1.3 billion, from $1.35 billion.

In the U.S., net sales were down 4.4 percent to $747.9 million, and international sales dipped 2.9 percent to $548 million.

Ennis named the ability to “drive our company to act globally” as a key initiative for 2010. “The needle has been shifting toward international,” said the ceo, adding it currently accounts for 42 percent of company sales.

Revlon has global reach, and Ennis said in 2009 the company had success expanding the international footprint of other brands in the portfolio.

He told WWD the company introduced Revlon ColorSilk in Venezuela in 2009, and the brand now has a 5 percent share in that market. Revlon also introduced the premium Gatineau Paris skin care brand to 125 Shoppers Drug Mart stores in Canada.

As mass retailers in the U.S. work to attract customers who have defected from department stores, the mass retail environment has been awash in promotional activity.

“It continues to a very promotional category, and in-store activity is frequent,” said Elshaw. “Each retailer is trying to gain share so it’s intense.”

Ennis said Revlon improved its capital structure in 2009 by reducing debt by $81 million and refinancing a portion of its debt.

Last year, Revlon exchanged 9.3 million shares of a new preferred stock for the same number of Class A common shares, a deal that will consolidate Perelman’s control of the firm.

On Thursday afternoon, the company met with a group of potential lenders to discuss a possible refinancing of its existing 2006 term loan and asset-based revolving credit.

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