Revlon downgrades forecast on weak sales
The cosmetics giant on Friday said it no longer expects the
previously forecast 12 percent operating margin by the end of 2008,
despite making "good progress" in cost-cutting initiatives.
The revised revenue outlook, which sent shares plummeting over 40
percent, revealed a lower than expected growth from the firm's Vital
Radiance and Almay cosmetic lines, which Revlon said was due to stepped
up competitive activity.
The company also said it was hit by "less effectiveness" from certain of its revenue driving actions.
Revlon said it is continuing to take "important and appropriate
steps" to create long-term value and build its brands, including
continuing to invest in its brand initiatives. It will also be taking
"appropriate and aggressive actions" to reduce costs.
The Vital Radiance line, which is aimed at the 50-plus age group and
which first hit stores in December, may now face a reduced or modified
display space in certain retailers. The company said it believes the
line is "a compelling consumer proposition" and said it plans to work
with its retail partners to "optimize the new brand's productivity and
The company also said it will defer a $75m equity offering to later
in 2006 or early 2007 and will defer consideration of a proposed
refinancing of its current credit facility.
"Our initiatives are delivering significant incremental revenue
growth in 2006, although they are requiring significant levels of
investment to build consumer awareness and trial-particularly of Vital
Radiance-due in part to the heightened competitive environment," said
Revlon president and chief executive officer Jack Stahl.
"We believe that these investments, along with our other actions to
build the value of our brands, strengthen our retail relationships and
reduce costs, will benefit the value of our company over time," he
Revlon said it now plans to improve its margin structure through
cost cutting and "aggressive management of discretionary spending" , as
well as reducing returns though product lifecycle management and
promotional redesign initiatives.
In May this year the New York-based firm announced disappointing
first quarter results, with net losses increased from $46.8m in the
corresponding quarter ending last March, to reach $58.2m for the most
Net sales rose by 8 per cent to reach $326m, compared to $301m in
the previous year's quarter. Its mainstay skin care division only rose
by 0.5 per cent to reach $611.1m. Although sales of new lines were said
to be good, existing lines declined, largely offsetting the gains.
At the time, Revlon had said that it expected spending on it new
Vital Radiance line and a revamp of its Almay line to pay off in the
next few months, as future revenue gains from the two lines push up net
sales for the full financial year.
Currently the company's long-term debt stands at $1.3bn, compared to $1.41bn one year ago.