Revlon Cuts 250 Jobs; Some Losses To Occur At N.C. Plant
Posted September 26, 2006 6:09 a.m. EDT
NEW YORK — Revlon Inc. is cutting 250 jobs, or 8 percent of its work force, and is canceling its recently launched Vital Radiance cosmetics line aimed at older women in a bid to return the company to profitability.
More than 50 jobs will be cut at Revlons production plant in Oxford, according to media reports. Specifics on job cutbacks are expected to be announced today.
Vital Radiance products were among those produced in Oxford.
The steps announced Monday come a week after Revlon, which is controlled by financier Ron Perelman, ousted its president and chief executive officer, Jack Stahl, and replaced him with the company's CFO, David L. Kennedy.
Revlon also announced it expects losses in the third quarter and for the year, and its shares fell 15 cents, or 12 percent, to close at $1.09 in trading on the New York Stock Exchange. That is at the low end of its 52-week range of 76 cents to $3.95.
"We are moving forward with a clear focus on leveraging the tremendous equity of our established brands _ particularly Revlon and without the burden of the operating loss we anticipated from Vital Radiance in 2007," Kennedy said in a statement.
Revlon, which has been struggling with debt and increased competition from rivals L'Oreal SA's Maybelline and P&G's Cover Girl, had been counting on Vital Radiance to help reverse its fortunes. But results for the brand, which landed on retailer's shelves early this year and is aimed at the over 50-age group, were disappointing, causing merchants this spring to cut back on space allowed for them. The company estimated that Vital Radiance will drag down the company's operating results by $110 million this year.
The company said that it was best to dump the line completely in the likelihood the brand would not be able to maintain an "economically feasible footprint" in the future.
The setback is the latest in a string of disappointments for Revlon and Perelman, chairman of the board, who owns 56.6 percent of the company's stock. The shares have fallen 60 percent since the beginning of the year.
Revlon continues to struggle with debt load _ currently at $1.4 billion _ since it was sold in 1985 to a subsidiary of MacAndrews & Forbes Holdings, a holding company controlled by Perelman, who has continued to infuse cash into the company.
"Revlon has a tough road to go. Their competition has so many more financial resources," said Kim Noland, director of high yield research at Gimme Credit, an independent research service on corporate bonds.
In a conference call Monday, Kennedy, who is the third CEO the company has had since 2000, acknowledged the latest news may be a bit "unsettling" but promised that in 2007 Revlon will begin reaping the benefits of the restructuring.
To drive future sales, Revlon will increase its focus on its Revlon and Almay businesses but won't be selling any brands, he said.
The restructuring, which marks the second cost-cutting move in seven months, includes eliminating certain senior executive positions and consolidating facilities. The company's brand marketing and creative activities in the United States will be consolidated, reducing layers of management.
As part of the changes, the roles of executive vice president and chief marketing officer, held by Stephanie Klein Peponis, and chief creative officer, held by Rodelle Udell, will be eliminated. The brand marketing leadership will report directly to Kennedy.
The role of executive vice president and president of international, currently held by Tom McGuire, is also being eliminated. The executives leading the company's three geographic international regions will report directly to Kennedy.
In February, Revlon announced it planned to eliminate 165 jobs _ or just under 2.5 percent of its global work force _ in an effort to reduce costs.
For the third quarter, Revlon said it expects a loss of $50 million in adjusted earnings before interest, taxes, depreciation, and amortization, and operating loss of $90 million. Adjusted EBITDA excludes the effects of gains or losses on foreign currency transactions and other items. The company expects net sales in the range of $280 million to $290 million.
For the full year, operating loss is expected to be approximately $45 million to $55 million, reflecting the impact of restructuring actions and the costs of discontinuing the Vital Radiance brand. Adjusted EBITDA is now expected to be approximately $75 million to $85 million. In August, the company said that EBITDA in 2006 would be flat or below 2005 earnings of $167 million.
For the year, the company expects net sales of approximately $1.3 billion, including the impact of Vital Radiance returns and allowances provisions in the second and third quarters of 2006. Analysts surveyed by Thomson Financial expected $1.7 billion in net sales for the year.
For the year ended Dec. 31, the company lost $83.7 million, or 23 cents per share, compared with a loss of $142.5 million, or 47 cents per share, in the previous year. Net sales reached $1.33 billion, up from $1.29 billion in the year-ago period.