NEW YORK — Revlon Inc. reported Thursday that marketing support helped perk up its flagship brand, but its already crushing debt load grew under the weight of third-quarter losses.
This story first appeared in the November 1, 2002 issue of WWD. Subscribe Today.
Net losses for Revlon’s operations in the quarter narrowed slightly to $22.1 million, or 42 cents a share, from $22.9 million, or 44 cents, a year ago.
However, adjusting for ongoing operations, excluding restructuring costs and the sale of assets, losses widened dramatically to $17.9 million, or 34 cents a diluted share, compared with the year-ago deficit of $2.2 million, or 4 cents.
Net sales for the period ended Sept. 30 inched up 0.9 percent, to $323.2 million from $320.2 million a year ago, and were up 3.1 percent on a local currency basis.
So far this year, through the end of the quarter, the firm’s long-term debt has risen 4.5 percent to a hefty $1.72 billion.
On a conference call, Douglas Greeff, executive vice president and chief financial officer, expressed confidence that the firm would be able to make arrangements with lenders even if it falls outside the terms of its loan covenants.
Despite that, investors traded down shares of the firm 45 cents, or 11.4 percent, to close Thursday at $3.50 on the New York Stock Exchange.
After the market closed, Standard & Poor’s placed Revlon’s debt on CreditWatch with negative implications. “Revlon’s financial flexibility has declined substantially in 2002,” said S&P analyst Lori Harris in a statement.
Revlon’s North American operation drove ongoing sales up 1.5 percent to $232 million, while the international division’s sales were essentially on par with a year ago at $91.2 million. Without foreign currency translation, sales at the international division grew 7.3 percent.
Jack Stahl, president and chief executive officer, who joined the firm from Coca-Cola in February, told WWD that Revlon’s difficult financial condition wasn’t hindering his turnaround efforts. “We’re doing exactly what we think we should do to strengthen the business. I don’t see us not making investment decisions to help this business.”
Has anything caught him by surprise since taking the helm?
“The brands are probably even more responsive to marketing than I would have thought or hoped for,” he replied.
A step-up in the marketing of the Revlon brand in late August helped boost the brand’s September U.S. market share in color cosmetics 140 basis points against a year ago to 17.1 percent, according to ACNeilsen. For the quarter, the Revlon brand’s U.S dollar market share in color cosmetics climbed 60 basis points from a year ago to 16.7 percent. On the other hand, the Almay brand’s share of the color cosmetics market dipped 20 basis points during the quarter to 5.5 percent.
The firm’s overall color cosmetics dollar market share during the third quarter stayed flat at 22.4 percent.
Stahl said Revlon is “working to develop and execute a strategy around the Almay brand that will begin to take shape as we move into early next year.”
Right now, though, the Revlon brand is the focus. On the call, Stahl said the name “responds to basic marketing pressure and well-planned and executed brand support. It’s a good brand and a resilient brand.”
And that could be a lifesaver for the struggling firm right now.
“Revlon, as a name, is right now actually bigger than the business,” he said. “Our strategy is to make the business as big as the name.”
The cosmetics firm is in the midst of a massive turnaround effort, which first entailed cost rationalization and is now turning toward stabilization and growth of the business. To achieve this, Revlon currently is focusing on its increased marketing efforts as well as day-to-day execution with its retail customers.
Perhaps looming larger in the mind of Revlon equity investors and debt holders, though, is the firm’s fiscal health. In a nutshell, Stahl asserted: “We remain very, very confident that we continue to have access to the liquidity we need to run the business.” On the call, the firm said it currently has a liquidity of $126 million. This figure includes $40 million made available through a MacAndrews & Forbes Holdings affiliate. MacAndrews is controlled by financier Ronald Perelman, who owns 83 percent of the beauty firm. Stahl added of Perelman: “We’ve got a very supportive principal share owner who’s very excited about the business and wants it to work.”
Greeff, the cfo, told listeners on the call that the firm wasn’t sure it could meet the profit criteria laid out in its credit agreement.
“If we are unable to meet the covenant, which increases from [earnings before interest, taxes, depreciation and amortization of] $185 million in the third quarter to $210 million in the current fourth quarter, we are very, very confident that we will be able to work through that circumstance with our lenders,” he said.
For the nine months, the company reported losses were reduced to $107.1 million, or $2.05 a share, from $125.4 million, or $2.40, a year ago. Ongoing operations, before special items, posted losses of $87.1 million, or $1.67 a diluted shared. This compared with the year-ago deficit of $44.9 million, or 86 cents. Sales for the first three quarters of 2002 slid 5.1 percent to $906.8 million from $955.9 million a year ago.
Speculation about whether Revlon will ever be sold was firmly silenced on at least one front. During the Estée Lauder shareholder meeting in New York on Wednesday, chairman Leonard Lauder was asked if Lauder is interested in buying Revlon.
“At present, I’m not smart enough to know what to do with that company,” Lauder said. “They have an attractive new chief executive officer in the form of Jack Stahl and I’m sure he’ll do well.”
Lauder further noted that all of Lauder’s brands have a discreet distribution and “we do not believe in taking the brands and moving them down-market.”