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Revlon Reinventing Again

NEW YORK — Revlon Inc.’s getting another touch up.For the second time in as many years, the firm rolled out a turnaround plan to Wall Street as questions of liquidity and a lack of profitability dramatized the need for new...

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NEW YORK — Revlon Inc.’s getting another touch up.For the second time in as many years, the firm rolled out a turnaround plan to Wall Street as questions of liquidity and a lack of profitability dramatized the need for new direction.

This story first appeared in the August 2, 2002 issue of WWD.  Subscribe Today.

Speaking for the first time on his plans for the beleaguered beauty giant, Jack Stahl, who joined Revlon as president and chief executive officer in February, insisted that the firm is poised for growth. “Long term, we are striving for 10 percent to 12 percent annual revenue growth,” he told WWD earlier in the week. Earnings before interest, taxes, depreciation and amortization are slated to grow faster than revenues.

Stahl tipped his hand to Wall Street at an analyst meeting Thursday. Achievement of Revlon’s financial goals, though, remains a long way off.

Second-quarter net losses narrowed to $38.9 million or 75 cents a share, from $56 million, or $1.07, in the year-ago quarter. Exclusive of restructuring and consolidation costs in both quarters, losses from ongoing operations widened to $35.4 million, or 68 cents a diluted share, from the year-ago deficit of $18 million, or 34 cents.

Sales for the quarter ended June 30 slid 4.3 percent to $308.2 million from $322.1 million a year ago. Looking solely at ongoing operations, these sales declined a milder 2.4 percent and, exclusive of the negative impact of foreign currency translation, remained flat. North American sales from ongoing operations inched up 0.4 percent to $217 million, while international sales dropped 8.4 percent to $91.2 million and slid a milder 1.5 percent in constant currencies.

Investors pushed down shares of the firm, based here, 23 cents, or 4.6 percent, to close at $4.77 on the New York Stock Exchange. The stock has traded in a range of $3.80 to $8.98 in the past 52 weeks.

Revlon’s previous leadership team emphasized “cost cutting and rationalizing expenses,” recapped Stahl.

Going forward Stahl believes the company’s flagship Revlon brand can eventually reclaim a 21 percent market share — which it last hit in 1997 — restoring it to a leadership position in the category.

On a conference call with analysts Thursday morning, Stahl noted domestic dollar consumption of Revlon brand color cosmetics rose 1.6 percent during the first half. “That’s a good indicator. It doesn’t mean that we’ve won the war, but it does mean that we’ve begun to stabilize the business and show some signs of growth”

Stahl is clearly taking a more aggressive approach than his predecessors. Last year, company executives asserted that Revlon’s business would be “right-sized” at about an 18 percent share. Revlon’s market share for the last quarter was 16.4 percent. In June, noted Stahl, the brand hit its highest share in 12 months with a 17 percent share.

To stimulate sales, Stahl has outlined four areas of emphasis, including better execution at store level, which includes tailoring programs to meet specific retailer needs. As an example, Stahl said one retailer requested a different shipping model than standard and Revlon made the adjustment. He said he is beginning to get “good feedback.”

Kathy Steirly, vice president of cosmetics at Eckerd, commented that Stahl “is very receptive.”

He also pointed to the newly formed Revlon management team that contains two executives from Clairol. Debra Leipman-Yale now heads up the Revlon brand and Liz Kenny oversees Almay. Additionally, David Kennedy, a former Coca-Cola colleague, was tapped to fill a vacant international post. Stahl described his team as a group “very focused on the detail.”

Then there is the crucial matter of energizing the brand and clearly defining its position. Charged with that is a cross section of brand executives along with Rochelle Udell, executive vice president creative development and Deutsch Advertising, the agency of record for the company.

Stahl, who has accompanied market researchers into consumers’ homes to chat about the brand, said Revlon’s brand positioning will emerge “through the advertising.” And the approach to marketing the brand will be integrated — a consistent message through ads, in-store materials and packaging. It will be “360 degrees,” said Stahl. An example of this is the 007 Bond promotion coming this fall to coincide with the release of the film starring longtime Revlon model and recent Oscar winner Halle Berry. Originally conceived as a $6 million idea, Stahl thinks Bond could reap sales triple that mark. Retailers like the concept but hope Revlon doesn’t retreat on its support. Other new offerings within the core line include ColorStay OverTime lipcolor, ColorStay OverTime Lash Tint and Nail Illusion.

Ad spending will increase and be focused on core products. And while Revlon operates in numerous product categories, color is the company’s anchor. Stahl also hopes to stimulate cross-shopping across the brands by better merchandising complementary items like foundation and compact powder.

The other sticking point for Revlon has been its lack of successful product launches, another area Stahl hopes to remedy. Already, he proudly pointed to four items that ranked in the top ten of ACNielsen’s new product ratings this year. They include Revlon Skinlights Diffusing Tint, Revlon LipGlide, Almay Kinetin foundation and Almay Pure Tints lipcolor. Revlon has also received positive feedback on its new Her Wall display, which has generated double-digit gains. It is now in some 2,300 doors and will be in 6,000 by yearend.

There could also be some modification of the new trade terms introduced by Revlon last year. Retailers say they want to see 100 percent credit on returns, in line with a new Unilever plan.

Stahl said he was planning similar programs for Almay. Some retailers have already expressed impatience with the brand’s marketing programs as they watch sales decline. One retail executive said: “We hope they are spending money on getting the product out in front of the consumer, instead of plastering it in Times Square.” Recently Almay took out a Times Square billboard promotion and handed out product samples.

Another Stahl platform is improving communication throughout the company. He now holds weekly cross department meetings and writes a weekly employee newsletter. A goal is to make Revlon a “Top 100” company to work for.

After Revlon’s meeting with Wall Street, Standard & Poor’s debt analyst Lori Harris said of the turnaround prospects: “It’s too early to tell, in terms of new leadership. They understand that their focus is improving revenues and reversing market share declines and to ultimately become cash flow positive and repay debt. They have the right objectives, it’s just execution.”

Goldman Sachs equity analyst Amy Low Chasen noted that, while the firm’s debt load limits its flexibility relative to its competition, “They had a lot of debt back when they launched ColorStay and their results were phenomenal. Just because they have a lot of debt doesn’t mean they can’t be effective.”

Of Revlon’s top-line goal, she noted, “It makes the assumption that they’re going to gain market share. They’re coming off of a low base so I don’t think it’s unreasonable, but posting 10 percent sales growth long term in the consumer packaged goods industry is a challenge.”

These restructuring efforts, though, need to be executed on a debt high wire with very little netting to break a fall. Long-term debt at the end of the half stood at $1.68 billion, up 2.1 percent from Dec. 31. Short-term borrowings jumped 29.1 percent to $22.6 million since the end of 2001. Cash and cash equivalents at the end of the quarter dropped almost 70 percent over the six months to $32 million.

“As we look to 2003, we’re confident that we can meet or exceed our bank covenant requirement and that we’ll have the liquidity necessary to grow our business,” said Stahl on the call.

Executive vice president and chief financial officer Doug Greeff added that Revlon currently has $140 million of liquidity and expects to generate cash in the back half of the year. Historically, he said, “Revlon is a user of funds in the first six months of the year and then it generates cash in the second six months.”

For the first half, Revlon’s losses, including restructuring and consolidation costs, narrowed to $85 million, or $1.63 a share, compared with $102.5 million, or $1.96, a year ago. Sales for the six months dropped 8.2 percent to $583.6 million from $635.7 million a year ago.

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