Revlon Inc. sunk to a loss last year as Elizabeth Arden came on board.
This story first appeared in the March 6, 2017 issue of WWD. Subscribe Today.
And although the savings from the deal are mounting, the associated restructuring costs are also significant and just part of a complex picture at the company, which is also facing challenges in its home market and is relaunching Almay this year.
The beauty company’s losses tallied $21.9 million last year and compared with a net income of $56.1 million in 2015. However, the firm’s net sales rose 21.9 percent to $2.3 billion from $1.9 billion a year earlier with a big boost from the Elizabeth Arden deal.
Income from continuing operations before income taxes totaled $8.5 million, down from $110.7 million. Revlon’s adjusted numbers show profits of $83.7 million, also down from $103.1 million in 2015, and sales of $2.85 billion, down slightly from $2.86 billion.
Adjusted income from continuing operations came in at $159.9 million for the year, up slightly from $159.5 million.
Revlon’s president and chief executive Fabian Garcia said he is “encouraged” by the progress the company has made since it acquired Elizabeth Arden last year and that there are now more opportunities for the company to improve profitability and grow internationally. He also noted that international sales largely improved over the year.
He told analysts on a conference call that Elizabeth Arden has better market penetration than other Revlon brands, adding “the good news is, we’re learning from them how to step up our game, we want to see penetration more even.”
“But the consumer will decide that, not us,” he said.
Garcia added that Revlon “faced some specific challenges in North America, as U.S. mass retailers were impacted by beauty consumption shifting to specialty and online channels, particularly during the year-end holiday season.”
The decline in year-end sales “surprised” the company, Garcia said.
“Our strategy to drive long-term growth continues to focus on strengthening our iconic brands, continuing to build distribution in high growth channels, accelerating innovation and enhancing our digital capabilities.”
Part of that plan includes allocating more of Revlon’s marketing budget to digital advertising, while working to relaunch Almay during the latter half of this year.
Garcia said the new Almay will include more shades and have more of a focus on makeup, which will hopefully lead to additional shelf space with retailers.
“It is our aspiration that we will get more linear space that this brand deserves,” Garcia said. “More to come as we negotiate with our partners in the trade.”
Garcia also pointed out that savings expected from a restructuring laid out earlier this year, largely aimed at integrating Elizabeth Arden, have been increased to $190 million from $140 million, but he admitted those savings will take place “over several years.”
Revlon has so far only realized about $3 million in savings, but Garcia noted that plans for the restructuring are being accelerated, and savings for 2017 will fall between $45 million and $60 million.
That restructuring comes at price, that includes $65 million to $75 million in restructuring and related charges, $100 million to $110 million of integration-related capital expenditures and $70 million to $80 million of non-restructuring integration costs over the life of the program.
Last year, Revlon spent $34.5 million on restructuring costs related to the integration program and another $20 million of “non-restructuring integration cost,” Garcia said.
As for 2017, Garcia said Revlon will no longer be giving guidance on expected cash flow or earnings, and going forward will only be reporting on “growth and results.”