The cosmetics company Revlon has grown up with nail polish, lipstick, creams and perfumes, but has been ill for years. Yet at the beginning of this year, it seemed for a while that the company, founded in 1932 in New York, might still be able to celebrate its hundredth year unscathed.
In early March, Revlon released promising year numbers. Revenue, which had suffered a major blow during the first corona year, appeared to have increased last year. Sales had increased by more than 9 percent to nearly $ 2.1 billion (2 billion euros).
Granted, Revlon made another huge net loss of nearly $ 207 million in 2021. Still, it was a big improvement over the year before, when the loss was nearly three times as large.
Last Wednesday, however, Revlon requested a deferral of payment because it was no longer able to meet its financial obligations.
The company said it was facing “ongoing global challenges such as supply problems and rising inflation.” And the debt would also be too high.
What went wrong with Revlon, which according to CEO Debra Perelman still has a ‘healthy market position’ and ‘brands loved by consumers’? And is there a prospect of survival?
Revlon was founded in 1932 as a nail polish maker by salesman Charles Revson, his brother and chemist Charles Lachman, responsible for the L in the company name.
Despite the recession of the 1930s, sales grew steadily, in part because the company focused on beauty salons and luxury department stores while staying away from budget fighters. Soon, Revlon also began selling lipstick and perfume. By 1945, the company had grown to the top 5 cosmetic houses in the United States.
Revlon subsequently took advantage of the post-war economic recovery, thanks in part to sponsorship of television programs and the use of actresses, TV heroes and supermodels.
Revlon was listed on the stock exchange in the 1950s and also operated successfully outside the United States.
For example, the Americans opened a sales office in Amsterdam in 1965, as a springboard to the European market. In the early eighties, 150 people still worked in the Netherlands, then in Nieuw-Vennep. Even today, Revlon still has Dutch subsidiaries located in Almere, but it is primarily financing companies.
After the death of founder Revson in 1975, his successor expanded his activities, including through acquisitions in the healthcare sector. In the cosmetics market, the company was surpassed by competitors like Estée Lauder.
Investors therefore began to push for a split. In 1985, Revlon fell victim to a hostile takeover by investor Ron Perelman, who also took over the helm of the cosmetics house.
The acquisition left Revlon with high and expensive debt, which was partially repaid through the sale of business units. But Perelman continued to work closely with famous actresses and supermodels, such as Claudia Schiffer and Cindy Crawford.
Back at the fair
Revlon returned to the stock market in 1996, raising $ 188 million. Owner Perelman remains a compelling major shareholder. According to the latest annual report, his investment company still owns 86 percent of the shares.
Revlon will never be the powerful company it once was after its acquisition of Perelman. Seven years ago, there was still a brief resuscitation. The cosmetics company’s price rose to over $ 40 in 2015, and a year later, a new top executive took office to give the company a new boost.
This ambitious Fabian Garcia is therefore making an appealing takeover of cosmetics company Elizabeth Arden in 2016 (see box: The Unilever connection). In retrospect, that deal is more like an escape forward. In 2017, Revlon posted a mega loss of $ 183 million on a respectable revenue of $ 2.7 billion.
A year later, Garcia has to make room for Debra Perelman, the owner’s daughter. She is also unable to help the cosmetics company recover. In 2018 and 2019, sales fell and Revlon again suffered heavy losses (see infographic).
In the stock market, the stock will fall back to around $ 20 in 2017, at which level it will remain for around three years. The stock prices of competitors like Estée Lauder and L’Oreal are going through the roof during this period.
In August 2019, Perelmannetjes has had enough. The family announces that they are studying ‘options for the company’ together with the investment bank Goldman Sachs. Read: anyone who wants Revlon can come and pick it up.
These sales plans will be torpedoed in March 2020 by the corona pandemic. Cosmetics and perfume companies like Revlon have been hit hard by the closure of airports, shops, beauty salons and saunas.
In addition, consumers can no longer go to the office or to restaurants or parties, reducing the demand for make-up and personal care products. No one wants to buy Revlon anymore.
The cosmetics company will reduce costs drastically in March 2020 by cutting 1,000 jobs. In November of the same year, it avoided bankruptcy through debt restructuring at the expense of bondholders.
By the end of the first corona year, Revlon will replace the damage. Sales fell 21 percent in 2020 to $ 1.9 billion. At $ 619 million, the net loss is a multiple of the losses of previous years.
But in early March, Revlon publishes its annual figures for 2021, which seems to indicate that the worst is behind us. Revenue rose more than 9 percent last year to nearly $ 2.1 billion. And the net loss is limited to $ 207 million.
In the latest annual report, top woman Debra Perelman writes that she expects Revlon to survive healthy despite the setbacks of the past.
The American business magazine Forbes is still lyrical about her performance at the end of March. “Revlon was an iconic brand in 2018 that was honored worldwide, but large and unmanageable. Over the past four years, the new management has transformed the entire company, which can now deliver a high-end consumer experience.”
400 million evaporated
Investors do not share Forbes’ enthusiasm. The price of the cosmetics giant has been falling steadily since March from $ 12 to $ 4 last Wednesday. As a result, shareholders see more than $ 400 million evaporate in four months.
Last week, the company finally ran into financial difficulties. U.S. media do not as much attribute the suspension of payments to external factors that Revlon mentions, such as inflation and supply problems, but point mainly to the high debt that has often played the company a trick under Perelman. Revlon is in debt of $ 3.7 billion.
According to market experts, the company was also unable to keep up with more successful competitors like L’Oreal and Estée Lauder, and it was plagued by startups from stars like Kylie Cosmetics from Kylie Jenner and Fenty Beauty from Rihanna.
After Revlon was ordered to suspend payment by the judge, it announced in typically obscure corporate jargon that it was now “taking steps to reorganize the capital structure.”
In other words, after the previous debt restructuring in the autumn of 2020, Revlon’s creditors will be put back on the shelf. They will have to give up some of their credits. These creditors are sometimes banks, but more often investors in corporate bonds such as our pension funds.
An emergency financing should guarantee that Revlon can continue for a while. During that period, the cosmetics company has to convince its creditors to be content with a small portion of their fortune because in the event of bankruptcy, they end up getting less or nothing.
There is one bright spot. If the Perelman family agrees with the creditors, the iconic cosmetics company might still celebrate its hundredth anniversary in ten years.
The Unilever connection
In 1999, owner Perelman tried to sell his cosmetics company Revlon, citing Unilever as a possible buyer. Estimated value at the time: $ 3 billion.
By the 1990s, the Anglo-Dutch food and soap giant had invested heavily in its ambitions in the luxury care market. For example, the group already owned cosmetics house Elizabeth Arden and perfume manufacturers such as Calvin Klein.
But instead of buying Revlon, Unilever withdrew from this market not much later after severe setbacks. In 2000, it sold Elizabeth Arden, and five years later the perfume companies.
Ironically, Elizabeth Arden finally ended up in the hands of Revlon in 2016. Perelman’s company paid $ 870 million for it at the time. Revlon still owns the former Unilever subsidiary, but the total value of the companies has now shrunk to about $ 200 million.