Revlon hit by weak sales in grey market

Cosmetics giant Revlon has confirmed that its preliminary Q2 results have been hit by weaker than expected sales of its news Vital Radiance cosmetic range for older women.

The company had been banking on a big take-up for the range, aimed at the 50-plus category. But despite the huge increase in sales of cosmetic products aimed at the graying baby boomer generation, Revlon’s new range appears to have missed the mark.

The company said that it is expecting to incur losses of $95m for the most recent quarter, as opposed to losses of $35m in the corresponding quarter last year.

Most of this rise is attributable to a $20m bill for sales returns from the Vital Radiance cosmetics line in the US. The company said that half the returns related to space reductions by large format retail customers.

In defence of the line’s performance, Revlon CEO Jack Stahl said that it had acheived a market share of two to three per cent in some major retailer outlets and that it was still on track to become a $50m brand.

Overall the company said that net sales for the second quarter would probably be in line with those achieved during the second quarter in 2005. It added that gross sales had grown by 8 per cent, mainly as a result of a strong performance for its other ranges on the US market.

However, the company’s share prices, which have been hit by profit warnings earlier on the year, gained slightly as the company confirmed that it was still on course to reach its revised outlook for the full financial year.

”Our long-term strategy is focused on action to build all of our brands, reduce costs and creating sustainable value,” said Stahl, who added his belief that these strategies should help to pave the way for a stronger performance in 2007.

The company said that to maintain financial flexibility it was considering amending its current bank credit agreement, by adding $75m to its loan facility. The company also said it planned to issue a further $75m in equity towards the end of the year or beginning of 2007.

Looking ahead to the full year 2006, the company said that the adjusted EBITDA would be below the $167m it achieved in 2005, adding the negative impact to operating income relating to the Vital Radiance line had been further impacted by $10m restructuring charges that were announced earlier on in the year.