In Q3 2015, Revlon Is Expected To Make Progress With Its Fragrance Business And The Professional Segment, However, Currency Headwinds May Persist

Revlon (NASDAQ:REV) is set to release its Q3 2015 earnings on November 4. The company has delivered a lackluster performance for the first half of 2015 after its healthy growth in 2014 (mainly after integrating The Colomer Group (TCG), into its operations). In Q1 2015, Revlon’s sales looked weak compared to the same period in the previous year because of the differences in initiatives taken. Revlon’s acquisition of  TCG (in Q4 2013) added approximately $130 million to Revlon’s core consumer product business in Q1 2014, which resulted in 4% growth. By contrast in Q1 2015, Revlon incurred an additional $16.6 million expense to re-launch a few of its brands. Besides, the company’s performance was severely dampened by currency headwinds in the first half of 2015. Revlon’s net sales for the first half of 2015 declined by 5% and stood at $921 million. Revlon’s acquisition in the fragrance segment, and its new initiatives in the segment, coupled with the growth in the professional segment might help the company’s performance in the third quarter. However, currency headwinds might continue dampening sales.

We will update our current price estimate of $34 for Revlon’s stock post the earnings release.

See Our Complete Analysis For Revlon Here

Revlon Has Been Active In The Fragrance Segment

In April, Revlon acquired U.K. based fragrance company CBBeauty (CBB) and its distributor, SAS & Company. Present in over 80 countries, CBB provides sales and strategic services to fashion fragrance brands. SAS & Company distributes and markets perfumes and beauty products from famous brands such as Burberry, Carven, One Direction, and Rihanna. ^[1] In October, Revlon launched its new perfume, Love Is On, in the TFWA show in Cannes (also known as, The Duty Free & Travel Retail Global Summit).  This had been Revlon’s first fragrance launch in over a decade.

After its acquisitions in the fragrance segment, Revlon is steadily building a stronger fragrance portfolio. Also, Revlon is targeting a new customer base in the travel retail segment for achieving significant growth. Travel retail, which is mostly dominated by premium cosmetics, will help Revlon find a new set of customers who are looking for affordable makeup products through this channel.

In its  Q2 2015 earnings call, Revlon’s management spoke about the potential for growth in the fragrance business which is currently in a fragmented state and lacks fierce competition. This provides Revlon with the opportunity for licensing smaller brands and developing those into bigger brands.

Currency Headwinds Expected To Persist

Currency fluctuations are dampening Revlon’s performance to a great extent. Given the global economic scenario, we feel that might be a mitigating factor for Revlon’s growth in the third quarter, as well. Revlon’s TCG acquisition has made it more prone to currency headwinds given the fact that over half of TCG’s sales come from the EMEA region. ^[2] Also, since TCG is growing at a higher pace than the rest of Revlon’s business, the revenue distribution between the U.S. and International markets is expected to normalize close to the half-way point in the future. Hence, even though TCG helped Revlon in geographic and portfolio expansion, the exposure to foreign currency is subjecting the company to temporary problems.

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More Trefis Research

1. Revlon Completes Acquisition of CBBeauty and SAS & Company, Revlon Press Release, April 30, 2015 [↩]
2. Revlon Reports 2014 Results [↩]