Revlon Faces A Setback In Q1 2015 Due To Currency Headwinds And Investment Initiatives

+245.91%
Upside
3.90
Market
13.49
Trefis
REV: Revlon logo
REV
Revlon

Revlon (NYSE:REV) announced its first quarter 2015 earnings on May 7th. On an XFX basis (excluding the impact of foreign currency fluctuation), the company witnessed flat sales and a 15.3% year-on-year decline in EBITDA. Revlon’s reported sales declined by ~7% on a year-on-year basis to $438.5 million. Net loss was $900,000 or $0.02 of loss per diluted share. The losses were a consequence of the differences in initiatives taken in Q1 2014 versus those in Q1 2015. Revlon’s acquisition of The Colomer Group (in Q4 2013) added approximately $130 million to Revlon’s core consumer product business in Q1 2014, reflecting 4% growth.

Also, in Q1 2015, the company incurred an additional $16.6 million expense in branch support in order to invest more for the re-launch of its key brands. The branch support investment for the rest of the year is expected to be more in line with the 2014 level. Finally, the company suffered currency headwinds in Q1 2015, which resulted in a reduction of reported net sales by $31 million and adjusted EBITDA by $1.8 million. [1]

We are in the process of updating our current price estimate of $31 for Revlon’s stock.

Relevant Articles
  1. Key Takeaways and Trends from Revlon’s Q4 Earnings Release
  2. What Was The Most Important Revenue Driver For Revlon Over The Last 3 Years?
  3. What Is the Fundamental Value of Revlon Based On Expected 2019 Results?
  4. Key Takeaways and Trends from Revlon’s Q3 Earnings Release
  5. How Will Revlon Perform In Q3 2018 Earnings
  6. What Are Revlon’s Key Sources Of Revenue?

See Our Complete Analysis For Revlon Here

Revlon’s Acquisitions In Q1 2015 And Further Takeover Plans

According to industry sources, Revlon is gearing up to bid for parts of Procter & Gamble’s (NYSE:PG) beauty business. Leading consumer processed goods company Procter & Gamble  has commenced the process to sell some of its beauty brands. [2] The global behemoth has reportedly sent out sale documents for its Wella hair care unit, the fragrance business, and certain unnamed cosmetic brands. Bloomberg reports that the combined value of these businesses could be as high as $19 billion, making it P&G’s biggest divestment so far.

Revlon is eyeing P&G’s cosmetics business, including brands such as CoverGirl and Max Factor. Annual EBITDA for this business is estimated at $350 million. It is still unclear whether P&G intends to sell its brands as part of a package (whose value can vary from $10 billion to $12 billion) or by piecemeal. The company might even decide to spin off the unit instead of selling it. [3] Neither P&G nor the potential bidders have confirmed these developments.

On April 30, Revlon acquired U.K. based fragrance company CBBeauty (CBB) and its U.K. distributor, SAS & Company. CBB distributes and markets perfumes and beauty products under the musical band, One Direction’s labels. The products are available in over 80 countries and the company provides sales and strategic services to select celebrity and fashion fragrance brands.

SAS & Company distributes and markets perfumes and beauty products from leading brands such as Burberry, Carven, One Direction, and Rihanna. CBB and SAS & Company will continue operating as independently managed divisions within Revlon. [4]

How Will The CBB and SAS Acquisition Benefit Revlon?

  • Diversification: Revlon’s management attributes this acquisition to aid in the diversification of its product portfolio. Currently, Revlon operates mainly in the consumer segment and the professional segment. The consumer segment is dominated by color cosmetics and the company aims to diversify its portfolio and boost its growth opportunities. This is one of the key strategic rationales behind the acquisitions in the fragrance segment. [1]
  • Brand Presence: Revlon’s current fragrance segment is reflecting fragmented growth. The management believes that CBB would provide more exposure to Revlon’s fragrance business and boost its growth that it requires. [1]
  • Entering Fragrance Licensing: By acquiring U.K.-based distributor SAS, Revlon aims to enter into the fragrance licensing business in the U.K. Post the achievement of the licensing capability, Revlon plans to pursue the acquisitions of select fragrance companies and expand its fragrance selection. That way the fragrance segment would gradually assume a dominant position in Revlon’s product portfolio.

View Interactive Institutional Research (Powered by Trefis):

Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap

Notes:
  1. Revlon’s (REV) CEO Lorenzo Delpani on Q1 2015 Results – Earnings Call Transcript, Seeking Alpha, May 7, 2015 [] [] []
  2. P&G Said to Kick Off Sale of Beauty Brands Including Wella, Bloomberg, April 8, 2015 []
  3. Exclusive – Henkel, Revlon, Coty prepare P&G beauty brand offers: sources | Reuters, FirstPost, April 16, 2015 []
  4. Revlon Completes Acquisition of CBBeauty and SAS & Company, Revlon Press Release, April 30, 2015 []