How Did 2015 Look For Revlon?

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

Revlon (NYSE:REV) didn’t witness much growth in 2015, primarily on account of currency headwinds. For the first nine months of 2015, Revlon’s net sales stood at $1.39 billion reflecting a 3% year-on-year decline. Revlon’s net income declined by 18% during the same period, to $31.3 million. Other than the weak foreign currencies, the company had several expenses which also dampened its financial performance. In the first nine months of 2015, Revlon spent almost $36 million more in brand support versus 2014. Revlon launched a Brand Renewal program last year that is expected to help it in introducing, retaining, or eliminating brands from its basket as per their user appeal and profitability contribution. Besides investing in channels such as media, more store activation, and promotional activities in the stores,  Revlon is also trying to expand its geographical presence post its acquisition of The Colomer Group (TCG) (in Q4 2013) and CBB (in Q2 2015). It launched new brands in countries like Australia and Japan. However, the majority of the investments had been completed through the third quarter, and investments are expected to be reduced in Q4. [1] [2] Revlon’s investments on acquisitions seem to be working well for the company. The company’s performance in the Professional segment grew significantly post TCG and Revlon has already started releasing new fragrance labels after acquiring CBB. It also intends to enter the fragrance licensing business soon. Keeping these points in mind, we believe Revlon is paving the way for a healthy long-term growth plan.

Our price estimate of $34 for Revlon’s stock is almost a 20% premium to the current market price.

See Our Complete Analysis For Revlon Here

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Focus On The Fragrance Business

Revlon’s acquisition of U.K.-based fragrance manufacturer CBBeauty (CBB) and its U.K. distributor, SAS & Company, bolstered its presence in the $40 billion global fragrance market. Present across 80 countries, CBB also offers sales and strategic services to select celebrity and fashion fragrance brands. SAS & Company oversees the distribution and marketing of perfumes and beauty products from prominent brands such as Burberry, Carven, One Direction, and Rihanna. [3] During its Q2 2015 earnings call, Revlon’s management spoke about the fragmented nature (and hence, lesser competition) in the fragrance industry. Currently the top two global beauty players, L’Oreal and Estee Lauder, enjoy around 20% and 7% of the fragrance market share, respectively. Revlon by comparison has only around 0.5% share in the ~$70 billion antiperspirant, deodorant, and fragrance market. The acquisitions might help expand Revlon’s market share by enhancing Revlon’s fragrance portfolio, and by also helping the company enter into the fragrance licensing business in the U.K. In fact, after receiving the licensing capability, Revlon plans to pursue further acquisitions in this segment and hence expand its fragrance selection. [4]

In October, Revlon launched its first new fragrance label in over a decade (called Love Is On) in The Duty Free & Travel Retail Global Summit held in Cannes. Taking the help from its acquisitions, Revlon seems to be building a wider array of fragrance offerings which can aid it in increasing its market share in the fragrance industry. Additionally, the company is targeting a new customer base in the travel retail segment who are looking for affordable makeup products through this channel. The importance of increasing its market share in the fragrance segment is illustrated by the fact that if Revlon is able to gain even 1% of the antiperspirant, fragrance, and deodorant market share by the end of our forecast period (as opposed to the current prediction of ~0.6% market share), the company’s valuation will rise by over 10%.

Currency Headwinds Are A Major Setback To Revlon’s Growth

So far in 2015, weak foreign currency has been a major roadblock to Revlon’s performance. Though TCG boosted Revlon’s growth in the Professional segment and helped the company with its geographic and portfolio expansion, it has also made Revlon more prone to currency headwinds. This is because more than 50% of TCG’s sales are contributed by the EMEA region. [5] Since TCG’s growth rate is higher 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. However, currency fluctuation is an economic issue applicable across the industry, and leaving aside its impact, we can conclude that Revlon will overcome these short-term problems to grow steadily with the help of its strategic investments in the future.

 

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Notes:
  1. Revlon’s (REV) CEO Lorenzo Delpani on Q3 2015 Results – Earnings Call Transcript, Seeking Alpha, July 29, 2015 []
  2. Revlon Form 10-Q For The Quarterly Period Ended Sep 30, 2015 []
  3. Revlon Completes Acquisition of CBBeauty and SAS & Company, Revlon Press Release, April 30, 2015 []
  4. Revlon’s (REV) CEO Lorenzo Delpani on Q1 2015 Results – Earnings Call Transcript, Seeking Alpha, May 7, 2015 []
  5. Revlon Reports 2014 Results []