Revlon’s Domestic Market Keeps Worsening While International Markets And Online Channels Show Signs Of Hope

Revlon (NYSE: REV) released its Q3 2017 earnings on November 3rd. The company’s net sales were down by 11.6% on a proforma XFX (constant currency) basis even though its reported revenues rose by 10.2% to $667 million on account of its Elizabeth Arden acquisition. The main reasons for this disappointing performance was the decline in demand for its products in the U.S. market and the mid-tier departmental stores, and the bleak performance of its Professional segment. The reported net loss for the company stood at $32 million, a steep decline from the $5 million loss in Q3 2016. The adjusted EBITDA declined by around 49% to $54 million and this decline was mainly due to Revlon’s poor sales. The company is desperate to see a breakthrough in its performance following quarter after quarter of lukewarm results and towards that end, it is currently focusing on its international markets and online channels to boost its sales. We have a $17 price estimate for Revlon’s stock, which is around 25% lower than the current market price.

Segment-Wise Performance

• Revlon’s Consumer segment net sales declined by 11% y-o-y on an XFX basis mainly due to the weak performance of the U.S. mass retail channels and an overall decline in demand for its products in North America. However, the decline was offset to some extent by Revlon’s growth in the overseas markets.
• Elizabeth Arden’s proforma sales declined by 11% on an XFX basis due to lower sales of heritage and designer perfumes mainly in the U.S. mass retail channels. However, its overall net sales increased by 4% on a proforma XFX basis for the first nine months of 2017.
• Net sales in the Professional segment declined by 12% on an XFX basis due to the declining sales of brands like CND nail products and American Crew men’s grooming products.

Revlon’s Appeal In The U.S. Keeps Waning While It Is On The Rise In The International Markets

Revlon’s dismal performance in the U.S. has been impacting the company adversely as it derives almost 50% of its revenues from the North American market. Though Elizabeth Arden has expanded Revlon’s exposure to the international markets, till now a lion’s share of its revenues came from the U.S.  Consumers in the region have shifted loyalties to specialty beauty retailers or online purchases. Hence, a lot of stores containing its products closed down with several retail partners destocking Revlon’s products in their inventory. This was further worsened by the loss of sales from Florida and Texas due to the catastrophic hurricanes in those regions.

However, Revlon’s international business is showing signs of hope and that might be the driving factor for its business in the future. On a pro forma XFX basis, the international sales improved by 5% for Q3 2017. Along with this, Revlon’s online sales turned to be a bright spot for this quarter. Its online sales have grown by 31% year-to-date and the company believes that online sales have a tremendous potential for future growth as right now it contributes to only 5% of the overall revenues. Towards this end, the company is gearing up its online business and has taken several steps as discussed below.

Revlon Is Trying To Make A Breakthrough With Its Digital Initiatives

• Revlon collaborated with a leading digital consultancy, Sapient Razorfish, this July, in order to create a stronger digital presence.
• A team of digital professionals joined Revlon’s New York headquarters recently and they’ve been divided into three work streams: The first will help in developing a seamless experience for the customer to purchase its products online. The initial rollout of this project will happen with 100 products from Revlon, Elizabeth Arden, and Almay, and will include a new brand initiative which will be first launched online. The second work stream will aid in enhancing the customer engagements across the social media platforms. The third team will be involved with the other digital aspects such as content, digital assets, costumer relationships, and e-commerce platforms.
• A new beauty lab studio has been opened in the New York office.
• New social media celebrity campaigns for Almay and Elizabeth Arden have been introduced recently.