Is Revlon a Safe Investment?

Why did Revlon post a fourth-quarter loss, and what does the future hold for the company?

Apr 10, 2014 at 2:12PM

Personal-care companies, just like the entire consumer-goods sector, have suffered amid global economic headwinds. Revlon (NYSE:REV) is no exception, as it reported a fourth-quarter loss. However, the company is trying its level best to achieve a turnaround despite competition from Avon Products (NYSE:AVP) and The Estee Lauder Companies (NYSE:EL). Let's see if Revlon is set to get back on track.

Fourth-quarter results
During its most recent quarter, Revlon registered a net loss of $0.63 a share in contrast to a profit of $0.89 per share in the year-ago quarter. The net loss was attributed to a host of factors: exchange rate fluctuations, acquisition costs related to The Colomer Group, and other costs associated with structural changes during 2013. However, net sales increased by a whopping 28% to $491 million.

For the full year, the company reported a loss of $0.11 per share compared to earnings of $0.98 per share in the prior year. Net sales for the year grew more than 7% to approximately $1.5 billion.

Segment analysis
After acquiring TCG, Revlon split its business into two segments -- consumer and professional. Net sales for the consumer segment fell 2.4%, while the profit declined by 8.9%. Excluding the impact of currency fluctuations, the segment's net sales grew 0.7%.

On a regional basis, performance in the consumer segment is given below. It is evident that foreign currency fluctuations played a major role in dampening sales during the quarter.


The professional segment contributed $116.8 million in sales, while its profit stood at $5.2 million. Moreover, the segment generated a healthy profit margin of 4.5%.

What is Revlon up to?
In October, Revlon completed its acquisition of TCG, which was a part of Revlon until 2000 when it was spun off. TCG is a beauty-care company which sells professional products to salons and professional channels. It had annual sales of approximately $500 million last year and accounted for 24% of Revlon's revenue during the fourth quarter.

In January, Revlon began its integration program, which is designed to reduce operating costs of approximately $30 million to $35 million by year-end 2015. Almost $10 million to $15 million of these cost reductions will be achieved this year. The integration program will ensure that the company reduces its selling, general, and administrative expenses by identifying synergies and operating efficiencies across the global supply chain and offices.

Unfortunately, China hasn't proved to be a successful market for Revlon amid tough economic conditions in the country. As a result, the company has finally decided to exit the Chinese market. Quitting China means that Revlon will incur pre-tax restructuring and related charges of approximately $22 million. Overall, Revlon expects $8 million of the annual savings to be recorded in 2014.

Industry peers
Avon Products, the world's largest manufacturer and distributor of beauty products, reported a dismal performance in the fourth quarter. During the period, the company reported a loss of $0.16 per share, twice the loss per share from the year-ago period. Revenue dropped 10% to approximately $2.7 billion.

After the initial failure of Avon's SAP software in Canada, the company decided to cease using the product globally. The inability of the company to successfully roll out this software cost Avon somewhere in the ballpark of $100 million to $125 million. To make matters worse, a large majority of the company's employees left due to difficulty in using SAP.

Estee Lauder reported a slowdown in fiscal second-quarter earnings. Earnings came in at $1.09 per share, down 3.4% from the same quarter a year earlier. However, earnings surpassed analysts' expectations of $0.99 per share. Revenue grew 2.9% to approximately $3 billion.

The Chinese market is tough for Estee Lauder, as the company is still coping with slumping demand in the region. However, the company offset lost sales in that region somewhat by registering 6.5% sales growth in Asia Pacific and 6.8% growth in Europe, the Middle East, and Africa.

The company expects to earn $0.52 to $0.55 a share in the current quarter compared to analysts' expectations of $0.63 per share.

Final thoughts
Though Revlon posted a fourth-quarter loss, its revenue jumped by a huge margin, suggesting the company's products are still quite popular among customers. On the earnings front, Revlon should try to get back on track as soon as possible by efficiently managing the structural changes occurring. 

The integration program promises to be a good strategy, as it's expected to reduce operating expenses by a great deal. The acquisition of TCG is already proving to be a wise decision, as seen by the company's remarkable growth. Furthermore, exiting the Chinese market will cut the company's losses and give it an opportunity to invest this money in a more lucrative market.

Although Revlon is gradually progressing, I still believe it needs more time before it will start to earn significant profits amid ongoing economic challenges. Considering this, I remain neutral on the company right now.

6 stock picks poised for incredible growth
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Zahid Waheed has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers