What Are The Implications Of Revlon’s Acquisition Of Cutex International Business?

June 9th, 2016 by Trefis Team
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Revlon

On June 6th, Revlon acquired the nail brand, Cutex International, business from Coty. The Cutex International business mainly operates in the U.K. and in Australia. Revlon already owned a part of Cutex and with this acquisition, Revlon completed the global consolidation of Cutex’s worldwide operations under its own brand portfolio. Revlon aims to redesign some of Cutex’s nail care products and expand the portfolio of offerings so that it appeals to a wider customer base.

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Nail care brands fall under Revlon’s color cosmetics segment. Color cosmetics have contributed to around 55% to 65% of Revlon’s revenues since 2011 and is expected to do so in the future as well. Though Revlon’s acquisition of TCG has increased the contribution of its professional segment in its revenues (mostly accounted for by the hair care segment), the importance of color cosmetics for Revlon’s growth is undeniable. In 2015, for the first time in 5 years the revenues from color cosmetics segment declined by almost 1%.

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Cutex is a 100+ year old brand and is famous in the nail color and nail polish remover categories. Though nail care is a relatively slow growing category compared to skin care or other color cosmetics, it is possible that Revlon’s management has envisioned a growth strategy within this category in order to go ahead with the acquisition. We currently expect Revlon’s market share in the global color cosmetics market to increase gradually from the present 2.8% to ~4% by the end of our review period. If the market share increases to 5%, instead, then there can be an over 20% upside to our stock price estimate for the company. Even if the market share rises to 4.5%, there can be over 10% upside to Revlon’s current stock price. Hence, growing in this segment is extremely significant to the company and these might be measures to walk in that direction.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Revlon