After a very successful intervention on business processes and restructuring of operations in Europe, Revlon (NYSE:REV) now plans to implement similar changes across all regions globally. Revlon makes premium cosmetics, skin crèmes, deodorants and hair colors, and competes with the other leading players in beauty and personal care industry such as L’Oreal (PINK:LRLCY), Estee Lauder (NYSE:EL) and Avon Products (NYSE:AVP). We value Revlon with a $17.70 prices estimate at roughly a 5% premium to its current market price. Before we explore what could be the implications on Revlon’s stock of such a move, let’s take closer look at the results on European operations.
How did the restructuring impact the business in Europe?
1. Improvements in demand and supply forecasting: Integrating the processes closely enables better demand and supply forecasting. Not only did the forecast errors halve but Revlon can now also forecast eight quarters ahead. A more accurate and foresighted forecasting has helped in sourcing supplies in optimal quantities and at appropriate times while scheduling production accordingly.
2. Improvements in inventory levels: The SKUs were drastically reduced from 7,500 to 810. The percentage of stock, which was slow moving or obsolete dropped from 35% to single figures now, which has helped reduce inventory levels by almost 50%. 
3. Improvements in service levels: Again facilitated by better co-ordination between processes, Revlon could deliver the new products at the agreed upon time and in the agreed upon quantities to the retailers leading in OTIF (On Time In Full) performance improving from 40% to 95% of the orders in Europe. With the result the service levels rose to 98.5%
All of the above measures have helped Revlon reduce its operating expenses and improve its EBITDA margins, which grew from just under 17% in 2007 to around 20% over 2009-10.
How much could be the impact on Revlon’s stock?
As Revlon gears up to impact similar change on its global operations, we can expect further improvements to its profit margin. We currently forecast, Revlon’s EBITDA margin to remain flat at current levels of close to 20%.
If however the EBITDA margins were to improve by another 2 percentage points over the course of our forecast horizon, we can expect over 20% upside to our current $17.66 Trefis price estimate of Revlon’s stock.
You can drag the graph to see the impact on Revlon’s stock price estimate.Notes: