Here’s How The Success Of Revlon’s Current Growth Initiatives Can Provide A Significant Boost To Its Valuation

Revlon’s (NYSE: REV) performance has not been impressive in 2017. For the first nine months of 2017, Revlon’s net sales  rose by 24% to $1.9 billion mainly on account of its Elizabeth Arden acquisition. However, the company’s sales growth in terms of constant currency has been disappointing so far. The main reasons for this disappointing performance were the decline in demand for its products in the U.S. market and the mid-tier department stores, and the bleak performance of its Professional segment. The reported net loss for the company during the same period stood at $106 million, a steep decline from the $14 million net profit for the first nine months of 2016. The company is desperate to see a breakthrough in its performance following quarter after quarter of lukewarm results and towards that end, it is currently focusing on its international markets and online channels to boost its sales. Revlon has also formulated some growth strategies for both its domestic and international markets, and the success of these strategies can finally bear fruit for the company. We have a $22 price estimate for Revlon’s stock, which is in line with the current market price.

Revlon’s Initiatives To Revive Its U.S. Business And Further Grow Its Already Rising International Business

Revlon’s international business is showing signs of hope and that might be the main driving factor for its business in the future. However, the company’s share of revenues from the U.S. market has been gradually declining and it is trying to reduce its reliance on the market even further. Despite that, the U.S. still remains the most important market for the company. A few years ago the revenue derived from the North American market was almost 65%, and even though it has now declined it still stands at 50%. A slump in sales in the U.S. market has been impacting Revlon’s performance adversely over the last few quarters. Consumers in the region have shifted loyalties to specialty beauty retailers or online purchases. A lot of stores containing Revlon’s products closed down with several retail partners de-stocking Revlon’s products in their inventory. However, the importance of the market for its business despite these dismal trends is not lost on Revlon. Not only does the U.S. business contribute to half of its revenues, the U.S. business also has a higher margin. The international business on account of being more fragmented leads to higher sales, general, and administrative costs. Along with this, in a lot of these international markets the sales take place through a distributor model thereby lowering the gross margins compared to the U.S. This is due to the huge scale of its U.S. business compared to its business in other international markets. Hence, the company is taking several measures to revive its sales in the U.S. markets. Some such initiatives include:

1. Management Discussions: The top management is engaging in extensive discussions with the top 10 customers in the U.S. A lot of new marketing and product initiatives might come into place as a result of this.
2. Boost In Online Sales: Revlon’s top 10 customers in the U.S. will strive to grow its sales further with the help of its various online initiatives. Revlon’s online sales are growing impressively. The online sales have grown by 31% year-to-date up to Q3 2017 and the company believes that online sales have a tremendous potential for future growth as right now it contributes to only 5% of the overall revenues. Revlon collaborated with a leading digital consultancy, Sapient Razorfish, this past July, in order to create a stronger digital presence.
3. New Team Of Digital Professionals: A team of digital professionals joined Revlon’s New York headquarters recently and they’ve been divided into three work streams: The first will help in developing a seamless experience for the customer to purchase its products online. The initial rollout of this project will happen with 100 products from Revlon, Elizabeth Arden, and Almay, and will include a new brand initiative which will be first launched online. The second work stream will aid in enhancing the customer engagements across the social media platforms. The third team will be involved with the other digital aspects such as content, digital assets, costumer relationships, and e-commerce platforms.
4. Brand Makeover: All of Revlon’s brands are undergoing a makeover which is expected to be completed by the first quarter of 2018. The company is striving to make its products more relevant for the millennial beauty users, the most coveted group of customers that are the primary drivers of the beauty market sales. Along with that, it is trying to modernize some of its brands that do not appeal to the newer generations. Finally, the company is trying to cater to buyers with diverse purchasing power abilities.

The global market for color cosmetics is estimated to have been around $65 billion in 2017 and it is expected to reach around $75 billion over the next three years. Revlon’s market share is expected to increase from 4% in 2017 to 5% during the same period. However, if Revlon’s growth strategies bear fruit and offer a major boost in demand and sales for its products resulting in its market share increasing to 6%, there can be around 25% growth in Revlon’s stock price from our current estimates.