Revlon announce third-quarter loss due to product discontinuation

By Louise Prance

- Last updated on GMT

Related tags: Net sales, Executive officer, Chief executive officer, Marketing

Despite an overall increase in net sales, cosmetic leader, Revlon,
reported a third quarterly loss on Tuesday, due to costs incurred
for the discontinuation of unsuccessful product line, Vital
Radiance, and company restructuring.

Revlon announced that its net third-quarter loss stands at $100.5 million, widening from $65.4 million a year earlier.

However, overall net sales did increase from the comparable third quarter in 2005, with a rise from $275.3 to approximately $306 million in the 2006 third quarter, a respectable percentage increase of 11 per cent. This was despite net sales being reduced by approximately $15 million due to the Vital Radiance line.

President and chief executive officer, David Kennedy, stated "Our results in the quarter reflect the important, and admittedly costly, decisions we have made to position Revlon for future success."​ The company added 'the line did not maintain an economically feasible platform for future growth'.

The decision to discontinue the line also saw the company incur charges of approximately $49 million, including provisions for returns and allowances and the write-off of inventories and selling and promotional material.

Revlon stated that the strong performance of International sales was driven by particular strength in Europe and Latin America, which contributed to an overall nine per cent increase from 2005, with a net sales rise from $134 million to $145 million, excluding the impact of foreign currency translation.

However, the US market was affected by the net sales reductions that occurred due to returns and allowances of the Vital Radiance, and previously Almay brands. This made the net sales comparable with the previous year, advancing 13 per cent to $160 million from $142 million.

Market share results saw an increase in color cosmetics, the Revlon brand, women's hair care, and beauty tools, with the Almay brand, Vital Radiance, and anti-perspirants and deodorants all maintaining its share position.

Overall the company highlighted that despite the impact of the discontinuation of Vital Radiance and executive severance affecting its operating profitability an estimated $140 million by the end of 2006. This means that the shortfall will, in the long run, contribute to positive net income and cash flow.

However, around 250 jobs are expected to be cut in order to contribute to this goal, with Revlon previously disclosing plans to initiate an organizational streamlining that will reduce layers of management, overhead costs, and eliminate redundancy, which is hoped to result in an estimated saving of $34 million.

Revlon President and Chief Executive Officer David Kennedy stated, "Our results in the quarter reflect the important, and admittedly costly, decisions we have made to position Revlon for future success. Importantly, our go-forward approach will continue to focus on bringing innovation and excitement to the market in a way that is intensely focused on driving our profitability and cash flow."

Kennedy also added that the company expects to achieve an adjusted EBITDA of approximately $210 million in 2007, despite the effects of the restructuring and discontinuation charges that were incurred this year.

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