Revlon’s Q2 Earnings Might Also Remain Dampened Due To The Weak Demands In North America

Revlon is slated to release its Q2 2017 earnings results on August 4th. Though Revlon’s net sales are witnessing growth on a y-o-y basis, it is mainly due to the acquisition of Elizabeth Arden. In Q1, on a pro-forma and constant currency basis, Revlon’s net sales declined by 5.3%. The main reason for this weakness was the decline in foot traffic in the U.S. brick and mortar retail stores, the closure of several stores in the U.S., and the persistent shift of beauty sales to the online channels and specialty beauty retailers in the region. Around half of Revlon’s total sales is contributed by North America, hence, the slowing down of business in the region impacted the company significantly. Also, Revlon’s innovation pipeline for brands like Mitchum and SinfulColors progressed slower than anticipated. There was an inventory reduction by its important retailers owing to weak consumption and that also added on to Revlon’s troubles.

Changes To Boost Growth

Revlon is currently pursuing a three-pronged growth strategy that includes: improving the relevance of its existing brands, expanding its presence in multiple channels and geographies, and optimizing its cost structures. Furthermore, Revlon’s brands have 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). The four global teams are responsible for chalking out their three-year growth plan for their respective brands. The advantage of the specialized teams is that they can react and adapt to changing market demands faster than the whole company could have done as a single entity. Finally, along with its trade partners, Revlon is gearing up with better in-store experience, greater innovation, and robust digital marketing.

Revlon’s Exposure To International Markets Increased After Its Elizabeth Arden Acquisition

One of the biggest advantages of Revlon’s Elizabeth Arden acquisition is the former’s expansion to the international markets. Revlon’s excessive dependence on the North American market, a beauty market that is already matured and that is witnessing a sharp decline in footfalls in its brick and mortar stores, is one of the main reasons for its lackluster sales. Though Revlon is taking measures to recover its sales in North America, it might take some time for it to reap benefits from the plan.

On the other hand, Revlon’s performance in the international market is going better than in North America. In Q1, its Consumer Segment’s brands were popular in regions like Japan, Australia, and Hong Kong. After the consolidation of the Cutex nail care portfolio, the global reach of the brand is helping Revlon in its growth. The Professional segment’s brands experienced strong demand in regions such as the U.K., Italy, France, Mexico, Russia, and Germany in Q1 2017.

Elizabeth Arden’s international sales grew by 10% y-o-y on a pro-forma, constant currency basis in Q1, due to strong demand in the travel retail segment and in geographies such as Hong Kong and Singapore. Revlon’s Elizabeth Arden integration implementation is going on track, and the multiyear estimate of annualized synergies and cost reductions have been increased to $180 million. The company expects to realize $50 million to $60 million in cost savings this year, out of which $9 million of benefits have been realized in the first quarter itself.

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