What happened
Revlon (REV) stock trailed the market by a wide margin this week. The makeup specialist's shares fell 22% through Thursday trading even as the wider market rose 1.5%, according to data provided by S&P Global Market Intelligence. The decline put owners of the struggling business deeper into negative territory for the year, with shares down over 40% in 2022.
It was sparked by a second-quarter earnings report that showed expanding stresses on the business.
So what
Revlon, which is currently going through a bankruptcy restructuring, revealed on Tuesday that sales fell 11% in Q2, to $443 million. That decline likely involved market share losses, given that the wider makeup category is growing.
It also worsened an already difficult financial story. Revlon's gross profit margin fell by 4 percentage points. Impairment charges related to the restructuring and to the slowing sales trends also hurt earnings. All told, the company reported an operating loss of nearly $30 million compared to a profit of $15 million a year earlier.
Revlon has burned through $50 million of cash in the last six months, highlighting the need for the business to reduce its cash outflow burden so that management has more time to turn sales and profitability trends around.
Now what
The earnings update adds to a bleak outlook for Revlon in 2022 as the business fights to restructure its debt so that it can return to profitability. The company is also going through a management transition, with CFO Victoria Dolan retiring in September.
Revlon's bankruptcy process, in addition to the heavy amount of speculative bets against the business, should keep volatility high for this stock. In some cases that volatility may produce quick upswings, including around rumors of a private equity buyout.
But investors shouldn't let that potential sway them toward such a risky stock. There are more attractive ways to get exposure to the consumer staples industry.
