ANALYSTS LAUD REVLON’S DEPARTURE FROM RETAIL
Byline: Catherine Curan
NEW YORK — Wall Street analysts praised Revlon Inc.’s announcement this week that it will exit the retail business, saying the move will allow management to focus on the core cosmetics and personal care products areas.
As reported, Revlon said Monday it plans to dispose of its 85 percent stake in Cosmetic Center, which it acquired in April 1997 and merged with its retail arm, Prestige Fragrance & Cosmetics Inc.
Following Revlon’s move this week, Howard Deiner resigned as Cosmetics Center president and chief executive officer. Deiner is being succeeded by Betsy Burton.
Prior to joining the Cosmetic Center, Burton was chairman and ceo of BB Capital Inc., a financial concern she founded that invests in small- to medium-sized retail and service companies. She was the chairman and ceo of Supercuts Inc. and PIP Printing, where she was responsible for turning the companies around.
While Revlon looks to shed The Cosmetic Center, it acquired an ethnic hair care line earlier this week called African Pride. African Pride consists of hair products and pomade for men and women of color.
As for the market reaction, Constance Maneaty, analyst at Bear Stearns, said Revlon’s departure from retailing “makes plenty of sense.” She said the retail business lacked critical mass, took management’s time away from developing its brands and had lower margins than Revlon’s other businesses. She added that now Revlon’s management can focus on its core wholesale operation.
Andrew Shore, analyst at PaineWebber, said he welcomed the divestiture, which is expected to be completed by the end of July. He said that Revlon culled out the weakness in its fragrance business in the fourth quarter. That move, combined with the disposal of all of its retail operations, means Revlon can focus fully on building its beauty care, Ultima II and professional businesses while maintaining momentum in its core self-select color cosmetics area.
“Any weakness in the core color cosmetics area will not leave much wriggle room for Revlon,” he said, adding that he expects second-quarter sales to grow 5 to 6 percent, and his earnings-per-share estimate for the second quarter is now 20 cents, down from 24 cents. The quarter will end June 30.
In the year-ago second quarter, Revlon lost $5,500,000, after a $14,900,000 charge for early extinguishment of debt, on sales of $572,200,000.
Carol Warner, analyst at Prudential Securities, said: “Revlon’s real strength has been its core business. Their new products, which have begun to ramp up, and the support from the advertising side, should lead to another strong year.”
In a research note, Warner said Revlon’s total revenues will now lack Cosmetic Center’s contribution of $150 million in sales, but said the chain’s gross margins were 41.6 percent of sales, against Revlon’s 66.8 percent of sales.
Warner reduced her earnings-per-share estimate for the year to $1.87 from $1.96 against $1.14, to reflect the divestiture, but she has not changed her assumptions about Revlon’s core business. “Revlon’s consumer take-away and market shares remain strong,” she said.