) posted a 2% growth in sales to $1.32 billion in 2010, ending a 4%
year-on-year drop in sales over 2007-09. What is particularly
promising is that Revlon managed to sustain its margins in another
competitive year as the global economy recovered from the economic
downturn in 2007-09. During the downturn, consumer goods companies
like Procter & Gamble (
) increased their marketing and advertising spend in an attempt to
maintain or even restore market share.
We value Revlon at a
price estimate for the company's stock, roughly at parity with the
current market price.
Revlon increased its advertising expense by $33.8 million to
support the company's brands but partly offset this by realizing
$19.4 million in savings on cost of goods sold, thereby improving
See our full analysis and $14.88 price estimate for Revlon
However, the 2010 annual reports highlight three major issues
with regards to Revlon.
U.S. Continues to Dominate Sales
Revlon draws almost 55% of its total sales from the U.S., an
economy that trended at a relatively low, under 3% growth rate in
2010. Emerging markets in Asia, where Revlon still has limited
presence, have seen much higher growth rates by comparison.
U.S. Continues to Deliver Negative Growth in
Revlon's home turf, the U.S. market, showed a 3% decline in
sales during 2010, following a 4% decline in 2009. Comparatively,
Revlon's sales in the Asia-Pacific region grew at over 11% in 2010.
Latin America's revenue contribution declined during this period,
primarily due to foreign exchange impact.
Stable Debt Levels Over 2009-2010
Revlon has struggled with heavy indebtedness, but has
progressively reduced its debt burden over 2007-09. The effort led
to limited investments in advertising, R&D and capacity
expansion. We've previously expressed our concern over Revlon's
gradual reduction in leverage that has spurred a limited
availability of funds for investment. We've suggested the potential
for a moderate decline in market share from this development
(see Despite Debt, Revlon Should Spend on Branding Color
In 2010, Revlon maintained its leverage near 2009 levels. Since
the company does not currently pay dividends, maintaining leverage
enables Revlon to put money back into the business. With stable
debt levels, we now expect increased spending for R&D and
advertising going forward, which could spark a gradual rise in