NEW YORK — Revlon is seeing a lighter shade of red, as the beauty giant posted a slightly slimmer second-quarter loss, better sales and market share gains.
This story first appeared in the August 1, 2003 issue of WWD. Subscribe Today.
Revlon experienced a net loss of $37.8 million, or 68 cents a diluted share, for the three months ended June 30, extending its losing streak to 19 quarters in a row. This compares to a loss of $38.9 million, or 74 cents, in the same period last year. Overall revenues gained 4.5 percent to $322.3 million from $308.2 million, led by growth in color cosmetics with both the Revlon and Almay brands.
Excluding the favorable impact from foreign currency fluctuations, sales grew 2 percent.
The quarter’s results were dragged down by charges of $15 million associated with its growth plan, bringing the total charges incurred to date this year to $26 million. In addition, the company said it continues to expect charges over the three-year period ending next year of up to $160 million, $130 million of which has been recognized to date, including the $104 million charged in 2002.
Commenting on Revlon’s current business and its future growth strategies, Revlon’s president and chief executive Jack Stahl, who joined Revlon from Coca-Cola in February 2002, said on a conference call, “We recognize we have a lot of work to do from this point going forward, but we are absolutely pleased with the progress we are beginning to make in strengthening our company.”
Still, he said the current softness of the category caused its rate of progress to be somewhat slower than it otherwise would have been. However, he insisted he would continue to take the necessary actions to achieve the company’s objectives of building Revlon’s stable of brands and achieving long-term profitable growth.
“There is no question the primary issue facing Revlon is the current softness we are seeing in the category, which is below our earlier expectations,” he said.
Stahl outlined three key business drivers the company will focus on in 2003, including strengthening the brand, building strong retail partnerships with its customers both in North America and around the world and strengthening and building Revlon’s organization.
While the company continues to bleed red, Stahl believes there is increased evidence in the quarter that strategies are taking hold. The company said strong new products, increased investment and more effective and stronger in-store marketing programs have begun to attract the confidence of its retail partners at both Revlon and Almay.
Revlon has grown its market share in the color cosmetics business in the U.S. versus last year, its third consecutive quarter of improvements. In the quarter, its total color cosmetics market share grew to 22.6 percent, up 40 basis points versus last year, with both Revlon and Almay brands contributing to the growth.
Specifically, the Revlon brand, which registered its fourth consecutive quarterly share increase, advanced 60 basis points to 17 percent market share, its 11th consecutive month of improvement, while Almay improved 30 basis points to 5.6 percent, its seventh straight month of improvements.
Since Revlon enhanced its marketing program beginning in the back half of last year, Stahl said, both Revlon and Almay have grown 4 to 5 percent faster than the U.S. cosmetics industry, the ceo noted.
“Through our marketing action, we have demonstrated continued market share growth, and that market share growth is a result of more effective and increased brand support,” Stahl said.
Highlighting the firm’s change in trend it has so far achieved and underscoring the importance of its growth strategy, in the second quarter, Revlon and Almay’s combined consumption growth was about 3 percent, while the category was down about 1.5 percent, as measured by ACNielsen. That is in stark contrast to where the company stood in the previous 16 quarters, where consumption combined trailed the category by a significant margin.
As reported, in an effort to replicate last year’s fourth-quarter success with its James Bond movie tie-in, for this fall Revlon is putting its muscle behind three holiday collections, the biggest of which is Revlon Red Rocks. Revlon crafted a bold collection of red shades — something for everyone, according to Revlon marketers.
Debra Leipman-Yale, executive vice president and chief marketing officer for Revlon, said on the call, “Since we initiated the growth strategy in the second half, the Revlon brand has consistently outperformed the category in terms of consumption growth by a healthy margin.”
But regardless of any investment in the company’s future, Revlon still must contend with $1.7 billion in debt. It will receive an infusion of $25 million in new cash from its principal shareholder MacAndrews & Forbes, who agreed to accelerate in the second half its commitment to provide some liquidity that would otherwise become available in 2004.
In North America, sales grew 3.7 percent to $225 million from $217 million, driven by growth in color cosmetics. In international, sales surged 6.6 percent to $97 million from $91 million. Excluding foreign currency exchange rates, sales were flat with those of the 2002 quarter..
Looking ahead, the ceo said 2003 is the year during which Revlon intends to dramatically improve not only the effectiveness of its marketing and customer relationships, but also to increase the investment behind the business, which will set the stage for growth in 2004 and beyond.
“We knew going into this year that various aspects of our growth plan would result in charges and in addition to these one-time charges, they would obviously reduce our reported results,” Stahl said. “At the same time, we also expected and continue to expect that our results at the end of this year and into 2004 would be stronger due to the fact that the lion’s share of the growth plan action would be behind us.”
In particular, he said, are those aspects of the plan that are one-time in nature. Also, with investments already made in many in-store displays, investments should moderate.
Specifically, he noted he is beginning to see signs of improvement in the category in June, relative to where it was earlier in the year.
“We are continuing to make a good deal of progress,” Stahl said. “I am highly confident that we will have access to the resources that we need to run the business and have the resources to invest for the long term.”
For the first half of the year, Revlon’s losses accumulated to $86.5 million, or $1.60, versus a loss of $85 million, or $1.61, in the comparable year-ago period. Sales rose 5.3 percent to $614.3 million from $583.6 million.