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NEW YORK — Revlon Inc.’s customers might look radiant in red, but the color doesn’t become its financial statements.
The beauty firm’s net losses for the fourth quarter widened more than sixfold to $179.4 million, or $3.44 a share. This compared with the year-ago deficit of $28.3 million, or 54 cents. The quarterly loss extends Revlon’s losing streak to 17 in a row. Investors were none too pleased and traded shares of the cosmetics firm down 18 cents, or 6.3 percent, to close at $2.70 Thursday on the New York Stock Exchange.
The quarter’s results were dragged down by charges of approximately $100 million from the firm’s growth and restructuring plan. The sum went toward selective product rationalization and pricing adjustments on several product lines. Up to $60 million in similar charges could be taken over the next two years.
Sales for the three months ended Dec. 31 fell 33.9 percent to $212.6 million from $321.7 million a year ago. The top-line drop reflected a $132 million increase in returns and allowances in the most-recent quarter, related to product rationalization, reduced distribution of the Ultima brand and pricing adjustments.
Revlon’s growth plan calls for increasing the effectiveness of its advertising and promotional spending as well as its in-store wall displays, discontinuing some products and tweaking prices on others while also investing in training and development of employees.
“We have accomplished a great deal in the past year,” said president and chief executive Jack Stahl on a conference call. “Obviously, we recognize that there’s a tremendous amount of work still to be done.”
Stahl joined Revlon, already in the midst of a massive turnaround, just over a year ago from Coca-Cola.
Reflecting on his time at the helm so far, Stahl told WWD in a telephone interview, “We have a wonderful brand that is proving to be very responsive to good marketing and at the same time our customers have been very willing and ready to work with us as we step up the overall marketing pressure against our business.”
Currently, Revlon is in the second phase of a three-part turnaround. The first phase, characterized by cost rationalization through the consolidation of manufacturing and reduction of overhead costs, was largely completed in 2001 by Stahl’s predecessor, Jeffrey Nugent.
For the last year, Revlon has been in the investment-intensive “stabilization and growth” phase of its plan, where it still toils, as seen in the fourth-quarter charges.
In stage three, or the “accelerated growth” phase, Revlon hopes to take advantage of all recent adjustments and kick its business into high gear.
While Revlon’s investors and debt holders have been waiting for a turnaround for some time, Stahl said progress is being made. “We continue to gain traction in the marketplace in the form of increased consumption of our brands and market share growth.”
North American gross sales picked up 9.7 percent to $291.5 million. However, international sales inched up 0.6 percent to $125 million, up 4 percent before the impact of foreign currency translation.
The firm’s overall market share of mass color cosmetics rose 1.7 share points to 23.6 percent. The Revlon brand picked up 2.2 share points for the quarter to 18 percent, while the Almay brand’s market share fell 0.1 share points to 5.4 percent.
“Our focus, actions and marketplace investments, which began in the second half of 2002, have created the necessary platform for us to further strengthen the business in 2003 by improving the in-store experience with our customers and for our consumers,” said Stahl.
Looming over whatever actions the firm takes is its considerable debt, the long-term portion of which stood at $1.75 billion at the end of the 2002, a 6.5 percent rise from a year earlier. So far, Revlon’s received significant financial support from its primary shareholder, Ronald Perelman, through his wholly owned MacAndrews & Forbes Holdings.
Last month, as reported, Revlon entered into an investment agreement with MacAndrews, which includes a $100 million term loan, a $50 million rights offering and a $40 million line of credit that increases to $65 million in 2004.
For the full year, losses grew to $286.5 million, or $5.49 a share, from $153.7 million, or $2.94, in 2001. Sales over the 12 months slid 12.4 percent to $1.12 billion from $1.28 billion during the preceding year.
Industry consultant Allan Mottus, noting the firm’s focus on its marquee brand, said Revlon’s become “a niche player, as opposed to a global beauty company. Maybe the best thing that’s happened to Revlon is that L’Oréal and Procter & Gamble are going after one another and are not trying to take Revlon out at this moment.
“Time is not working for them, it’s working against them,” he said. “They need product success stories quickly now.”
Competing vendors have also been quietly contemplating space increases at retail as Revlon’s fortunes have waned, according to sources. No doubt, the contemplation has turned to salivation as the industry digested the firm’s results for 2002.
Revlon’s standing pat, though. “We are pleased with the initial results that we’re seeing in the market place,” said Stahl on the call. “To drive the profitability of a consumer-branded company, you’ve got to start with the consumer and I think we’ve made a tremendous amount of progress over the past year in understanding the consumer, testing our market strategies, calling out required investment that’s going to drive the growth, securing funding around these strategies and getting great support from our retail partners.”