Revlon Earnings Preview: What We Are Watching

Revlon (NYSE:REV) is set to report its Q3 earnings results on October 25, and we will be interested in seeing how Revlon and Almay brands have performed. Last quarter, the company’s revenues grew about 4% year-over-year to $357 million supported by strong performances in the U.S. and Venezuela markets. The European and Asia-Pacific markets, however, reported a drop in sales. Both Revlon and Almay brands saw an increase in sales. Revlon’s sales growth was backed by strong sales of new products.

After a lackluster performance in Q2, the company has been trying to improve its product mix. Revlon has a highly leveraged balance sheet and much lower annual turnover compared to its competitors. This constrains it from spending more on R&D and marketing, leading to an adverse impact on its product portfolio and market share. Revlon competes with other beauty product companies such as L’Oreal (NYSE:PG), Avon Products (NYSE:AVP) and Estee Lauder (NYSE:EL).

See Our Full Analysis for Revlon Stock

Color Cosmetics

Sales from Color Cosmetics grew in Q2 as a result of new product introductions in the PhotoReady franchise. The new products, Airbrush Mousse Makeup and Revlon ColorStay Whipped Creme Makeup, reported strong sales in the U.S. and Canada. We will see how these products have performed in the third quarter and their impact on net sales. The company has been experimenting with customer engagement using social media and using platforms such as Twitter and YouTube for digital advertising. We are keen to know the impact of these initiatives as well as the company’s strategy in leveraging social media.

Fragrance and Beauty Tools

Revlon managed to retain its position as the number one brand in beauty tools in the U.S. and Canada last quarter on good performance by new products such as Mini Tweezer Set and Designer Nail File. However, net sales of beauty tools worldwide dipped while sales from fragrances and antiperspirant deodorants were essentially unchanged year-over-year. We are keen to see what the company has done to address the slowdown in growth for this category in the third quarter.

Increasing Marketing Budget To Defend Market Share

With lean cash flows, the company’s marketing budget is small compared to its bigger competitors L’Oreal and Estee Lauder. The beauty company also suffers with weak cash flows and high debt burden (debt in excess of $1.1 billion with just $1.4 billion in annual sales) which puts it in a highly unenviable position while competing with L’Oreal and Estee Lauder that have stronger marketing and R&D budgets to expand market share. We will be looking for any hints on the company’s strategy in the domain.

We have a $17 Trefis price estimate for the Revlon stock.

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