Revlon, Inc. (REV), the iconic beauty and personal care company, has been navigating a challenging landscape in recent years, marked by global supply chain disruptions, macroeconomic headwinds, and the impact of the COVID-19 pandemic. However, the company's recent Chapter 11 filing and subsequent restructuring efforts have set the stage for a potential turnaround, as Revlon looks to streamline its operations, strengthen its brand portfolio, and regain its footing in the highly competitive beauty industry.
Business Overview
Revlon is a leading global beauty company that develops, manufactures, markets, distributes, and sells an extensive array of color cosmetics, hair color, hair care and hair treatments, fragrances, skin care, beauty tools, men's grooming products, anti-perspirant deodorants, and other beauty care products across a variety of distribution channels. The company operates in four brand-centric reporting segments: Revlon, Elizabeth Arden, Portfolio, and Fragrances.
The Revlon segment includes the company's flagship Revlon brand, as well as Revlon ColorSilk and Revlon Professional. The Elizabeth Arden segment encompasses the Elizabeth Arden brand, as well as certain Elizabeth Arden-branded fragrances. The Portfolio segment includes a diverse array of brands, such as Creme of Nature, American Crew, Cutex, Mitchum, and Sinful Colors. The Fragrances segment includes the company's licensed and owned fragrance brands.
Revlon's products are sold worldwide in the mass, prestige, and professional channels, as well as through e-commerce and direct-to-consumer channels. The company has a global footprint, with operations established in approximately 25 countries outside of the U.S. and its products sold throughout the world.
Financials
Revlon's financial performance has been mixed in recent years, with the company facing significant headwinds that have impacted its top and bottom-line results. For the full year 2023, the company reported annual net income of -$677.8 million, annual revenue of $1,075.3 million, annual operating cash flow of -$243.5 million, and annual free cash flow of -$257.3 million.
In the third quarter of 2024, Revlon reported net sales of $468.4 million, a 10.1% decrease compared to the prior-year period. This decline was primarily driven by lower net sales across the company's Fragrances, Portfolio, and Elizabeth Arden segments, partially offset by an increase in Revlon segment net sales. The company's gross profit margin in the third quarter of 2024 was 55.7%, a decrease of 1.9 percentage points compared to the prior-year period, due to lower net sales, higher direct material costs, and unfavorable foreign currency impacts.
Revlon's operating loss in the third quarter of 2024 was $12.9 million, compared to operating income of $34.1 million in the prior-year period. This decline was primarily attributable to a $85.0 million increase in reorganization items, net, related to the company's voluntary Chapter 11 filing, as well as lower gross profit and higher foreign currency losses, partially offset by lower SG&A expenses and restructuring charges.
The company's net loss in the third quarter of 2024 was $152.8 million, compared to a net loss of $53.1 million in the prior-year period. The increase in net loss was driven by the factors mentioned above, as well as higher interest expense and amortization of debt issuance costs.
For the nine months ended September 30, 2024, Revlon reported net sales of $1,390.6 million, a 5.0% decrease compared to the prior-year period. Gross profit for the nine-month period was $794.8 million, with a gross margin of 57.2%, a decrease of 1.2 percentage points compared to the prior-year period. The company's operating income for the nine months ended September 30, 2024 was $7.1 million, compared to $35.9 million in the prior-year period, and its net loss was $495.4 million, compared to a net loss of $216.8 million in the prior-year period.
Segmental Performance
Revlon's Revlon segment reported net sales of $176.6 million in the third quarter of 2024, an increase of 2.1% compared to the prior-year period. This growth was driven by higher net sales of Revlon color cosmetics and Revlon ColorSilk, partially offset by lower net sales of Revlon-branded beauty tools. Segment profit for the Revlon segment was $13.8 million, a decrease of 14.3% compared to the prior-year period, due to higher departmental expenses and brand support expenses, partially offset by the higher net sales and improved gross profit margin.
The Elizabeth Arden segment reported net sales of $120.7 million in the third quarter of 2024, a decrease of 1.7% compared to the prior-year period. This decline was driven by lower net sales of Elizabeth Arden-branded skin care products in North America, partially offset by higher net sales of Elizabeth Arden-branded fragrances and skin care products in the International regions. Segment profit for the Elizabeth Arden segment was $16.0 million, a decrease of 24.9% compared to the prior-year period, due to higher departmental expenses, brand support expenses, and lower gross profit margin.
The Portfolio segment reported net sales of $83.0 million in the third quarter of 2024, a decrease of 26.4% compared to the prior-year period. This decline was primarily driven by lower net sales of Creme of Nature products, Mitchum anti-perspirant deodorants, CND nail products, and American Crew men's grooming products, primarily in North America, due to global supply chain disruptions. Segment profit for the Portfolio segment was $3.5 million, a decrease of 84.2% compared to the prior-year period, due to the lower net sales and gross profit margin.
The Fragrances segment reported net sales of $88.1 million in the third quarter of 2024, a decrease of 21.8% compared to the prior-year period. This decline was primarily due to lower net sales of licensed and distributed fragrances and other fragrances in North America, as well as lower net sales of licensed fragrances in the International regions, driven by the global supply chain disruptions. Segment profit for the Fragrances segment was $17.0 million, a decrease of 25.8% compared to the prior-year period, due to the lower net sales and gross profit margin.
Liquidity
As of September 30, 2024, Revlon had a liquidity position of $273.4 million, consisting of $246.4 million of unrestricted cash and cash equivalents (with approximately $87.4 million held outside the U.S.) and $29.6 million in available borrowing capacity under the Tranche A DIP ABL Facility, less $2.6 million of outstanding checks.
The company's ability to continue as a going concern is contingent upon its ability to, subject to the Bankruptcy Court's approval, file and implement a business plan of reorganization in a timely manner and within the milestones established under the DIP Facilities, as well as generate sufficient liquidity during the Chapter 11 proceedings and following emergence from Chapter 11 to meet its contractual obligations and operating needs.
Risks and Challenges
Revlon faces several risks and challenges that have contributed to its recent financial struggles and the need for the Chapter 11 filing, including:
1. Global supply chain disruptions and vendor negotiations during the Chapter 11 proceedings: The company has experienced volatility in costs, delays, and disruptions in the supply of materials and services, which have adversely affected its profit margins and ability to meet customer demand.
2. Macroeconomic headwinds and changing consumer preferences: Revlon has been impacted by decreased consumer spending, weakened consumption of beauty products, and shifts in consumer purchasing habits, including the continued migration to e-commerce and online channels.
3. Competitive pressures: The beauty industry is highly competitive, and Revlon faces intense competition from both established players and emerging brands, which has put pressure on its market share and profitability.
4. Operational challenges: The company has faced difficulties and delays in its manufacturing and sourcing operations, which have led to product shortages and declines in sales.
5. Debt burden and liquidity constraints: Revlon's significant debt load and limited liquidity have constrained its ability to invest in growth initiatives and weather the challenging operating environment.
Outlook
Despite the challenges Revlon has faced, the company's recent Chapter 11 filing and subsequent restructuring efforts have set the stage for a potential turnaround. The company's access to the DIP Facilities, if approved by the Bankruptcy Court, is expected to provide the necessary liquidity to continue operations and implement its business plan of reorganization.
Revlon's focus on strengthening its iconic brands, building its e-commerce and digital capabilities, and optimizing its manufacturing and supply chain operations could help the company regain its footing in the beauty industry. Additionally, the company's efforts to reduce costs and streamline its operations through the Revlon Global Growth Accelerator (RGGA) program may improve its profitability and cash flow generation.
While the path forward is not without risks, Revlon's turnaround story is one worth watching. The company's ability to successfully navigate the Chapter 11 process, address its operational challenges, and capitalize on the strength of its brand portfolio could ultimately position it for a return to growth and profitability in the years to come.