Weakness in the U.S. pushed Revlon Inc. into the red in the first quarter and spooked investors, who sent shares of the company down more than 23 percent to $19.30 by the end of trading.
For the first quarter of the year, Revlon posted net sales of $595 million, a 35 percent increase over the start of last year, but its net loss grew to $37.4 million during the quarter, compared with net income of $11 million a year ago.
That loss comes on the heels of a $21.9 million loss Revlon saw during its fourth quarter.
While Revlon president and chief executive officer Fabian Garcia attributed the company’s overall sales increase to “strong international sales growth across all segments,” he said results in the U.S. came in below expectations. Net sales for North America totaled $290.4 million for the quarter, a 9.3 percent drop from last year.
“During the quarter and as widely reported, most of our U.S. retail partners experienced lesser foot traffic, store closures and shopper channel shifting to online and beauty specialty retailer,” Garcia said during a call with analysts. “Although beauty remains a growth category in the U.S., where and how consumers shop for beauty is evolving.”
Garcia noted that Revlon and Almay have been affected by “slowing mass retail consumption” and related retail inventory reductions and said the company’s professional segment is up against “lower-priced competitor challenges.” Professional sales totaled $108 million for the quarter, a drop of 6.2 percent.
When asked by an analyst to further explain the losses in North America, Revlon chief financial officer Juan Figuereo said the “main drivers” were a slowdown in consumption and a shift to online shopping, along with increased promotional activity.
The ceo reiterated Revlon’s plan to boost U.S. sales, including steps to further brand investments and make lines more accessible. He pointed to “stronger and more modern positioning” for Almay, namely new product, packaging and advertising, as a successful example of the company’s efforts and noted that feedback from retailer and consumers has been positive.
“In fact, several retailers have agreed to expand their retail footprint for the brand,” Garcia added.
Revlon has also “successfully tested” a new merchandising concept that will elevate the in-store beauty shopping experience “on par with best-in-class beauty specialty retailers,” according to Garcia.
Revlon’s newest business, Elizabeth Arden, saw growth of just 0.4 percent, hitting $192 million in net sales, mainly due to international fragrance sales.
The full integration of Elizabeth Arden is ongoing, but the process has moved from planning to realization, according to Garcia, who said production out of the U.S., Mexico and Spain for the line’s fragrance, skin care and cosmetics is “on track” to begin in the second half of the year.
International was a bright spot for Revlon overall, with Garcia noting the consumer segment abroad grew 9 percent, driven by the popularity of Revlon color cosmetics in Japan, Hong Kong and Australia, Revlon Professional and Europe and Mexico and the company’s global expansion of its Cutex nail-care line.
As for the next quarter, Revlon didn’t give much detail, but Garcia said “what we all know…that the market trends are not changing materially.”
“It is very hard for me to say today whether there will be a gradual improvement in market conditions because we need to continue to see how the market trend evolves over the next months going forward,” he added.
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