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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 retail presentation."

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 added.

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 recent quarter.

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.