How Portfolio Diversification Could Be Key For Revlon’s Future Growth

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From shifting focus to the growing professional segment, through the acquisition of The Colomer Group (TCG) in mid-2013, to acquiring U.K. based fragrance company CB Beauty (CBB) in 2015, Revlon (NYSE:REV) is now focusing on diversifying its portfolio.The business of beauty is about adapting to changing consumer demands via continuous innovation and strategic moves, and Revlon is following this rule. The company launched its affordable product range, including fragrances in the travel retail channel, which is another strategic move to improve revenues. We believe Revlon’s strategy to focus on segments other than the retail color cosmetics space (where it is currently a leading player) could be key to driving its growth in the future.

See Our Complete Analysis For Revlon Here

Fragrance Market Has A Strong Potential For Growth

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The global fragrance market size is currently estimated to be around $40 billion, out of which L’Oreal and  Estee Lauder enjoy around 20% and 7% market share, respectively. Hence, given the fragmented nature of the industry and lack of too many big competitors, Revlon has a huge scope for growth in this industry through its 2015 acquisition of CB Beauty.  Its current market share in the fragrance, antiperspirant, and deodorant market is only around 0.5%, indicating that the company has huge potential to grow in this space by capturing a higher market share. The company management acknowledges this fact and understands the market potential.  Revlon’s focus on the fragrance market, after it receives the licensing capability, could be a key growth driver for the company.

Professional Segment Is Showing Impressive Growth

The acquisition of TCG has improved Revlon’s bargaining power as products in this segment are sold through professional saloon channels to niche buyers. As a result of the acquisition, Revlon’s professional segment witnessed impressive growth in 2014 by clocking in over $500 million in net sales, thereby reflecting an 8% year-on-year growth on a proforma basis. Professional segment profit in 2014 was $104.8 million with a 49.5% year-on-year (constant currency) growth rate. Thus, the diversification from retail color cosmetics to the professional segment has been beneficial for the company.

Owing to its large liabilities, Revlon had been struggling in the past few years to allocate cash flows towards marketing and research and development expenses. However, its strategic acquisitions aimed at diversifying its product mix are paying off. The company launched a Brand Renewal program in 2014 which will enable it to introduce, eliminate, or retain brands based on their appeal and profitability, thus increasing focus on profitable brands. Color cosmetics and hair color together constitute around 80% of Revlon’s valuation according to our estimates.  However, as the company starts strengthening segments such as fragrance and others, we expect future growth to be driven by these diversification efforts.

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