At the current price of $19.99, investors are recommended to sell REV, as this company neither has taken appropriate steps to turnaround
its business, nor has the long-term growth potential to support its
valuation.base make up revlon
According to the management, the higher operating income despite falling sales was driven by lower selling, general and administrative
expenses. The company has been cutting overhead costs and has shifted
brand support operations to its internal media agency. It also delayed
the timing of certain product launches. The improvement in operating
loss shows that such a strategy can be effective in the short term.
However, the global makeup and skincare industry has already become more competitive than ever. The Revlon segment, which is comprised of
REV's flagship Revlon brands, has to compete with hundreds of other
drugstore and premium makeup brands. Brands like Fenty Beauty and
ColourPop have more unique designs, they are more social media savvy,
and equally affordable. Now it is not the 1950s and Revlon has long lost
its position as a market leader.
To survive in this era, beauty brands have to keep innovating products to get consumers excited, and they have to spend heavily on
online marketing. Focusing on saving money and aggressively cutting
SG&A costs simply would not work in this new competitive landscape.
Most likely the reductions in operating costs will, in turn, further
hurt sales.
Dangers in the Overseas Market
Several trends have continued in REV's business performance. REV has four segments in total, Revlon, Elizabeth Arden, Portfolio, and
Fragrances. All of them saw sales decline in the North American market
in 2019 Q1 due to retail store closures and lack of competitiveness,
while Revlon and Elizabeth Arden managed to continue growth in the
international market. Elizabeth Arden segment reported net sales of
$91.2 million in Q2 2019, a y/y increase of 15.3%, driven primarily by
higher net sales of skincare products within the Company's Travel Retail
business and the Asia region, particularly in China.
China has been the growth engine for MNCs for the past decade, as this country rapidly develops its economy and consumers' disposable
income grows. But now we are at this very special stage of China-US
relations and US companies who find themselves reliant on the Chinese
market for growth may have to come up with a plan B. A weakened RMB and a
potential slowdown in the Chinese economy certainly hurts. What is more
detrimental is the generally negative image of US companies among
Chinese people, after Donald Trump banned Huawei in the US and escalated
the tariffs. Now more and more consumers avoid buying US goods and look
for alternatives from other countries. In the case of REV, Elizabeth
Arden will face tougher competition from premium brands like Shiseido
from Japan, Guerlain from France, and Proya from mainland China. It
remains highly uncertain if the Asia region will be able to continuously
contribute to growth in the following quarters.
