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Why Revlon Stock Dropped 27.4% in March

By Steve Symington - Apr 9, 2019 at 4:34PM

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From weak sales trends to a financial reporting foul-up, the cosmetics specialist had a rough month.

What happened

Shares of Revlon (REV -2.19%) declined 27.4% in March, according to data from S&P Global Market Intelligence, after the cosmetics company announced disappointing quarterly results.

More specifically on March 18, Revlon revealed that its fourth-quarter 2018 net sales declined 5.7% year over year (falling 3.7% at constant currencies) to $741.6 million, translating to an adjusted (non-GAAP) net loss of $45.2 million, or $0.86 per share. Analysts, on average, were expecting earnings of $0.15 per share on revenue of $749 million.

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So what

It certainly didn't help that, along with its quarterly release, Revlon also said it had "identified a material weakness in its internal control over financial reporting" for last year. The cause, the company says, was a "lack of design and maintenance of effective controls" for the implementation of its new enterprise resource planning system in the United States. The company also delayed filing its annual report with the Securities and Exchange Commission until March 28, to provide time to adequately disclose the problem.

To be clear, Revlon's painful quarter wasn't entirely surprising. In fact, while the stock did take a modest 7% hit the day after its formal earnings report, its biggest plunge last month came early on, with shares falling nearly 27% on March 5 alone after Jefferies analyst Stephanie Wissink cited data from Nielsen indicating a significant sales decline.

Now what

Revlon management remains optimistic. CEO Debra Perelman insisted it was "very pleased" with momentum in the fourth quarter, particularly given relative strength in areas of strategic focus, including e-commerce, travel retail, China, and the Elizabeth Arden skincare line. Perelman added that with the help of improved operational performance and the company's strategic optimization initiatives, Revlon remains "well positioned for long-term success."

Still, Revlon chose not to provide specific financial guidance. And until the company begins to show more tangible signs that its strategic initiatives can help it recapture sustained, profitable growth, I suspect the stock will remain under pressure.

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