Revlon Stock Falls to Record Low
Revlon Inc. shares fell to a record low for the second straight
session on Monday, weighed by two bearish broker calls after the
cosmetics maker on Friday forecast lower growth this year and said it
would delay a planned stock sale.
Shares of Revlon, which is controlled by billionaire financier
Ronald Perelman, fell 16 cents, or 8.6 percent, to $1.75 in afternoon
trading on the New York Stock Exchange. Earlier in the session, the
stock dipped to $1.65, well beneath the record low of $1.80 it hit
intraday on Friday, when Revlon issued the forecast.
In cutting its outlook, Revlon cited weak sales and stiffer
competition facing its Almay cosmetics and Vital Radiance brands. The
company also said it would delay a planned $75 million stock sale to
later in 2006 or early 2007, and defer a previously announced
refinancing of its credit facility.
"Even though we wanted to adopt a more constructive stance on the
stock at current levels, none of the drivers of the lower outlook cited
by management gives us enough comfort to change our 'Underweight'
rating," Lehman Brothers wrote in a client note.
Lehman, which blamed weakness in Vital Radiance as the main reason
for the worsened outlook, also said higher competition may force Revlon
to spend more on advertising, while lower sales would weigh on its
Separately, SunTrust Robinson Humphrey said while Revlon's forecast
was disappointing, "we do not view the announcement as a death knell
for the company," analyst William Chappell wrote. Most of the shortfall
was due to the Vital Radiance launch, but the rest of the business was
"only running slightly below plan," Chappell added.
Revlon also has the potential to expand operating margins between 8
percent to 9 percent by 2008, Chappell wrote. Operating margin,
calculated by dividing operating income over sales, gauges how much a
company makes before interest and taxes on each dollar of sales. Revlon
on Friday said it no longer expects to achieve 12 percent operating
margin by the end of 2008.