) is scheduled to report its Q2 2013 results on July 31. The
company is a leading player in the beauty and personal products'
space, competing with
), Estee Lauder (
) and Avon Products (
), and has a leading market position in the U.S. mass retail
channel for color cosmetics, women's hair color and beauty
Revlon's net sales grew 1.7% to $357.1 million in Q2 2012, from
$351.2 million in Q2 2011. Excluding currency fluctuations, net
sales for Q2 2012 grew by $14.9 million (or 4.2%) over Q2 2011.
Volume sales improved in the U.S., Latin America & Canada, but
were offset by weaker sales in Europe, the Middle East & Africa
and Asia Pacific. Sales from emerging markets as well as Europe
continued to be weak in Q1 2013. Sales were at $332 million and
were flat in comparison to previous Q1s.
For Q1 2013, Revlon posted a loss of $6.9 million primarily due
to loss from early retirement of part of its sizable debt load.
Although the company doesn't have any contractual obligations to
clear out debt in the remaining quarters of 2013, margins for
Revlon have very limited upside due to high cost of sales and
SG&A expenses. Operating income margins for Q2 2012 and Q2 2011
have been 11.98% and 13.61% respectively while net income margins
have been 3.11% and 1.85% respectively. The huge debt burden for
Revlon is continuing to weigh down on margins.
Our Full Analysis for Revlon Stock
Cost-cuttings And Debt Servicing To Lead Margin Revival
In Long Term
Revlon's management is focused on addressing the fundamental
problems plaguing performance. The company has undertaken a $24
million restructuring program by exiting from its owned and leased
manufacturing facilities in France and Maryland, resizing
operations in Europe, and combining operations in Latin America and
Canada into one entity to save on costs by 2013 end. The company
has incurred $8.3 million in employee severance costs and other
charges between September 2012 and March 2013, with the rest of
$15.7 million to be paid out during the remaining quarters in
The company also completed prepayments on $330 million of its
9¾% Senior Secured Noted due November 2015, by issuing $500 million
aggregate principal amount of 5¾% Senior Notes maturing in 2021. A
portion of the remaining proceeds from the issuance, along with
existing cash, has also been used to pay approximately $113 million
of principal of the 2011 Term Loan Facility. We believe these
initiatives taken by the company would help reduce costs and
interest expenses, leading to a marginal improvement on profit
after tax margins.
Additionally, lower expenses would give enough room for future
advertisement & marketing and R&D investments to fuel
growth. A higher allocation of revenues to advertising and R&D
could help improve sales growth which has been tempered as a
US Economy And Color Cosmetics' Sales To Drive
Revlon reported about 68% of the net sales from color cosmetics
and the U.S. contributed to 58% of the net sales in Q1 2013.
Contributions from Latin America and Canada, Revlon's smallest
market by size, amounted to 14% of the net sales in Q1 2013. In
2012, the revenue growth from the U.S. was primarily driven by
higher net sales of Revlon color cosmetics, SinfulColors color
cosmetics and Pure Ice color cosmetics.
Although sales declined in Europe, the Middle East and Africa by
11.6%, they were offset by ballooning sales from Latin America and
Canada and a 5.6% growth from the US in 2012. This improved sales
pattern in color cosmetics leads to a much faster recovery in the
company's performance, bolstered by the strong growth in the U.S.
economy and strong color cosmetics sales. We expect higher consumer
discretionary spending from the U.S. and Latin America &
Canada, increasing the global color cosmetics' market size.
We will update
our $15.72 price estimate for Revlon
after the company files its financials with the SEC.
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