Key Takeaways from Revlon’s Q4 2016 Earnings Results

Revlon released its Q4 2016 results on March 4th. The net sales for all its reported segments, namely Consumer, Professional, and Elizabeth Arden have grown for 2016. It has been around six months post Revlon’s completion of the Elizabeth Arden acquisition. The greater scale and the expanded business is benefiting the company resulting in the growth of its profitability. Revlon is emphasizing on an organic growth plan for the near future. It is focusing on the revival of its existing brands so that those appeal more to today’s young beauty consumers. The company has put a new organizational structure in place and is trying to capitalize on the strengths of its expanded brand portfolio. However, towards the end of last year, Revlon faced challenges when a lot of consumers switched loyalties from mass cosmetic retailers to specialty beauty and online channels. As a result, the mid-tier departmental stores witnessed a setback in foot traffic. In fact, previously Estee Lauder had also made a similar claim about the decline of traffic in brick-and-mortar retail chains that is adversely impacting beauty sales. However, with its recent market share gain on account of the Elizabeth Arden acquisition, Revlon is confident that it will be able to positively influence the retail channels and pull back consumers once again.

For 2016, Revlon recorded net sales of $2.3 billion reflecting around 21% y-o-y growth. However, the growth was mainly due to its acquisition of Arden. On a consolidated pro forma basis net sales grew by 1.4% after being adjusted for foreign currency. The fourth quarter net sales for the combined entity declined by 2.7% (on a constant currency basis) due to a weak demand for consumer beauty products and fragrances in North America. The only growing segments were its Professional segment that grew by 1.8% (on a constant currency basis) in Q4 and Elizabeth Arden which maintained its eight consecutive quarters of net sales growth.

Revlon’s Business Is Being Boosted By Elizabeth Arden

Revlon is currently trying to expand to international markets as so far ~60% of its revenues were contributed solely by the North American market. Elizabeth Arden is expected to aid Revlon in expanding its geographic presence. Revlon is building on its global presence with a special emphasis on Latin America and Asia.

The multi-year synergies and cost reduction due to the Elizabeth Arden acquisition has been revised upwards from $140 million to $190 million and Revlon aims at achieving it at a faster rate than before so that a part of the savings can be channelized towards its brand rebuilding initiatives. Revlon’s brands have recently been reorganized under four teams where each team focuses on one of the segments, namely, the Revlon brand; Elizabeth Arden’s products; fragrances; and the rest of the brands belonging to Revlon (Almay and others).

Focus Areas For 2017

• Revival Of Mass Retail Chains In The US: Revlon plans on boosting growth in the U.S. mass retail channels. Hence, the company, along with its trade partners, is gearing up with better in-store experience, greater innovation, and robust digital marketing. Its iconic brand Almay would be re-launched with a new brand image towards the second half of this year.
• Increasing Digital Presence: The company aims at strengthening its online presence, too. In February, Revlon partnered with Amazon for a campaign that featured co-branded shipping boxes and a social campaign that encouraged consumers to describe ‘love’ in three words. It roped in Gwen Stefani as its new global brand ambassador (Gwen has over 6 million followers in both Facebook and Instagram) and also hired four new social influencers in order to connect with the younger clientele. In the recently held Academy Awards, Revlon debuted The Love Project, a multimedia campaign featuring Lady Gaga, Pharrell Williams, and Ellen DeGeneres. The campaign is targeted towards socially conscious millennials and it received a huge positive response from the viewers.
• Three-Pronged Growth Strategy: Revlon is currently pursuing a three pronged growth strategy in order to become one of the top 10 global beauty players. The strategies include: 1. Improving the relevance of its existing brands, 2. Expanding its presence in multiple channels and geographies, and 3. Optimizing its cost structures.