20 Revlon

Revlon Inc. – 2011 Forest David

A.

Case Abstract Revlon is a comprehensive strategic management case that includes the co mpany’s year -end -end 2010 financial statements, organizational chart, competitor information information and more. The case time setting is the year 2011. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year three-year strategic plan for the company. company. Headquartered in New in New York, New York, Revlon’s common stock is publicly traded under the ticker symbol REV. Revlon is a global color cosmetics, hair color, beauty tools, fragrances, skincare, anti-perspirant deodorants and beauty care products company that produces and markets Almay and Revlon brand makeup and beauty tools, as well as Revlon ColorSilk hair color, Mitchum antiperspirants and deodorants, Charlie and Jean Naté fragrances, and Ultima II and Gatineau skincare products. Revlon beauty products products are distributed in more than 100 countries, although the US is its largest market, generating about 55% of sales. Revlon products can be found in most mass merchandisers and drugstores drugstores such as CVS, Target, Shoppers Drug Mart, A.S. Watson, and Boots. Wal-Mart alone accounts for about 22 percent of Revlon’s sales. Revlon vision is “Glamour, “Glamour, Excitement and Innovation through high-quality products at affordable prices.” prices.” Revlon websites featuring current product and promotional information include www.revlon.com, www.almay.com and www.mitchum.com. Corporate and investor relations information about Revlon can be accessed at www.revloninc.com.

B.

Vision Statement (proposed) To become the number one skin care and fragrance company in t he world.

C.

Mission Statement (proposed) Revlon Inc. mission is to emerge as leader in cosmetic and personal p ersonal care (2) throughout the world (3). Revlon takes pride using current technology (4) i n manufacturing e-co friendly (8) top skin care products (7) and strives to please young and older women (1). Revlon will provide career opportunities (9) for professional growth and stimulate their workers to achieve the highest returns for their shareholders (5). At Revlon, we believe good ethics is good business (6) and strive to serve the co mmunities in which we operate. 1. 2. 3. 4. 5. 6. 7.

Customers Products or services Markets Technology Concern for survival, growth, and profitability Philosophy Self-concept

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall.

8. 9.

D.

Concern for public image Concern for employees

External Audit Opportunities

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Wealthy consumers were not as affected by the economic d ownturn. The beauty and cosmetics industry is expected to increase globally by 8.5 percent in 2014 according to recent research from Euro Monitor International. Diversification of the distribution channels. There is an endless possibility to `celebrities’ endorsing fragrances, these products are successful because many consumers are persuaded by fame of the celebrity. Brazil provides a strategic opportunity for the brand to expand in the third-largest beauty market in the world. Men are increasingly concerned with their appearance. Increase in online purchasing, average monthly visits in the U.S. to beauty-related websites topped 60 million and grew 94 percent over past three years. Consumers are interested in products that are made with all natural products. Research shows that by 2015, global women’s purchasing power is expected to increase by $5 trillion and beauty is the category these consumers are most l ikely to spend money. Customers are increasingly shopping with “green” companies.

Threats

1. Intense competition in cosmetics has increased and market i nitiators with quality providers. 2. New entrants, even though the market has considerably mature in the sense that it has captured customer loyalty, but there is always room for improvement in this field. 3. Premium cosmetics are a prime target for counterfeiters. 9%, according to the Global Congress on combating counterfeiting, of all the world trade comprises counterfeit goods. 4. Regulations are increasing due to the voicing of different groups about harmful chemical ingredients in cosmetic products. 5. External challenges beyond companies control. (i.e. different weather types and natural disasters). 6. Recession is causing people to spend less on makeup products. 7. Discounting premium cosmetics can damage the products image. 8. Avon increased advertising in the quarter to $97 million, up 19% from the prior year quarter. The company increased advertising mainly in Latin America.


Competitive Profile Matrix

Estee Lauder Critical Success Factors

Advertising Product Quality E-commerce Consu mer Loyalty Price Competitive Global Expansion Financial Position Operating Locations Management Production Capacity Technological Advan ces Sales Distribution Totals

Weight 0.10 0.07 0.10 0.08 0.02 0.12 0.10 0.09 0.06 0.08 0.08 0.10

Rating 4 4 4 3 2 4 4 3 3 4 4 3

1.00

Score 0.40 0.28 0.40 0.24 0.04 0.48 0.40 0.27 0.18 0.32 0.32 0.30

Revlon

Rating 3 2 2 2 3 3 3 2 4 3 2 4

3.63

Score 0.30 0.14 0.20 0.16 0.06 0.36 0.30 0.18 0.24 0.24 0.16 0.40

Avon

Rating 2 3 3 4 4 2 1 4 2 2 3 2

2.74

Score 0.20 0.21 0.30 0.32 0.08 0.24 0.10 0.36 0.12 0.16 0.24 0.20 2.53

EFE Matrix Weight Rating Weighted Score

Opportunities

1. Wealthy consumers were not as affected by the economic downturn. 2. The beauty and cosmetics industry is expected to increase globally by 8.5 percent in 2014 according to recent research from Euro Monitor International. 3. Diversification of the distribution channels. 4. There is an end less p os sibility to `celebrities’ endorsing fragrances, these products are successful because many cons umers are persu aded b y fame of the celebrity. 5. Brazil provides a strategic opportunity for the brand to expand in the third-largest beauty market in the world. 6. Men are increasingly concerned with their appearance. 7. Increase in online purchasing, average monthly visits in the U.S. to beauty-related websites topped 60 million and grew 94 percent over past three years. 8. Consumers are interested in products that are made with all natural products. 9. Research sho ws that by 2015, global women’s p urchasing p ower is expected to increase b y $5 trillion and b eauty is the cat egory thes e cons umers are mos t likely to spen d money. 10. Customers are increasingly s hopp ing with “g reen” companies.

0.06

3

0.18

0.10

3

0.30

0.04

3

0.12

0.05

3

0.15

0.06

4

0.24

0.06

3

0.18

0.06

2

0.12

0.05

2

0.10

0.05

3

0.15

0.04

2

0.08


Weight Rating Weighted Score

Threats

1. Intense competition in cosmetics has increased and market initiators with quality providers. 2. New entrants, even though the market has considerably mature in the sens e that it has cap tured cus tomer loyalty, but th ere is always room for improvement in this field. 3. Premium cosmetics are a prime target for counterfeiters. 9%, according to the Global Congres s on combating co unterfeiting, of all the world trade comprises count erfeit good s. 4. Regulations are increasing due to the voicing of different groups about harmful chemical ingredients in cosmetic products.

0.09

2

0.18

0.09

2

0.18

0.09

2

0.18

0.02

3

0.06

5. External challenges b eyond companies control. (i.e. different weather types and natural disasters).

0.01

4

0.04

6.

Recession is causing people to spend less on makeup products.

0.06

4

0.24

7. Discounting premium cosmetics can damage the products image.

0.04

3

0.12

8. Avon increased advertising in the quarter to $97 million, up 19% from the prior year quarter. The company increased advertising mainly in Latin America.

0.03

3

0.09

TOTALS

E.

1.00

2.71

Internal Audit Strengths

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Revlon manufacturers cosmetics, hair color, skin care, fragrances, deodorants and other beauty products. Products are sold in more than 100 countries around the world with sales outside t he US accounting for 55% of all revenue. Top brands include: Mitchum, Gatineau, ColorSilk, ColorStay, and Ultima II. Sales in 2nd quarter of 2011 were $351 million for an increase of 4% versus second quarter 2010. Revlon supports women’s health programs and many other community e fforts investing over $65 million in medical research programs in 2010. Under the direction of new CEO Alan Ennis 400 jobs were eliminated and a restricting of the organizational structure saved the company $30 million in 2009. Revlon spent $24 million on R&D in 2010 employing 140 people on these tasks. Wal-Mart accounts for 22 percent of Revlon sales in 2010. Products can be found in Wal-Mart, K mart, Target, Walgreens, and CVS. Employee spokespersons such as Halle Berry, Jessica Alba and Jessica Biel.

Weaknesses

1. 2. 3. 4. 5. 6.

Inventory turnover of 3.5 versus the industry average of 4.9. Global market share declined from 4% in 2009 to 3% in 2010. Mission statement is not well developed. $1.2 billion in long term debt on year end 2010 balance sheet. Mitchum’s market share decreased by 9.1% in the anti-perspirant deodorants category. Many of Revlon’s top brands in the US are not marketed outside the US.


Financial Ratio Analysis Growth Rate Percent Sales (Qtr vs year ago qtr) Net Income (YTD vs YTD) Net Income (Qtr vs year ago qtr)

Revlon 5.70 NA -99.20

Industry 10.40 NA 4.00

S&P 500 14.50 NA 47.20

Sales (5-Year Annual Avg.) Net Income (5-Year Annual Avg.) Dividends (5-Year Annual Avg.)

-0.16 NA NA

5.47 7.90 10.67

8.31 8.76 5.70

Profit Margin Percent Gross Margin Pre-Tax Margin Net Profit Margin 5Yr Gross Margin (5-Year Avg.)

64.9 6.4 22.5 63.0

53.3 16.3 12.4 53.7

39.8 18.2 13.2 39.8

Liquidity Ratios Debt/Equity Ratio Current Ratio Quick Ratio

NA 1.5 1.0

0.80 1.0 0.7

1.00 1.3 0.9

Profitability Ratios Return On Equity Return On Assets Return On Capital Return On Equity (5-Year Avg.) Return On Assets (5-Year Avg.) Return On Capital (5-Year Avg.)

NA 33.3 50.6 NA 2.6 4.3

32.6 11.1 15.4 32.2 10.0 13.9

26.0 8.9 11.8 23.8 8.0 10.8

63,796 283,837 7.8 3.5

70,194 537,057 12.5 4.9

126,905 1 Mil 15.4 12.5

Efficiency Ratios Income/Employee Revenue/Employee Receivable Turnover Inventory Turnover Net Worth Analysis (in millions)

Stockholders Equity Net Income x 5 (Share Price/EPS) x Net Income Number of Shares Outs tand ing x Share Price Method Average

$ (696) $ 1,635 $ 795 $ 846 $ 645


IFE Matrix Weight Rating Weighted Score

Strengths

1. Revlon manufacturers cosmetics, hair color, skin care, fragrances, deodorants and oth er beauty products. 2. Products are sold in more than 100 countries around the world with s ales out side th e US accounting for 55% of all revenue. 3. Top brands include: Mitchum, Gatineau, ColorSilk, ColorStay, and Ultima II. 4. Sales in 2nd q uarter of 2011 were $351 million for an increase o f 4% versus seco nd q uarter 2010. 5. Revlon s uppo rts women’s health programs and many other community efforts inves ting over $65 million in medical research programs in 2010. 6. Under the direction of new CEO Alan Ennis 400 jobs were eliminated and a restricting of th e organizational s tructure s aved the company $30 million in 2009. 7. Revlon s pent $24 million o n R&D in 2010 employing 140 people on these tasks. 8. Wal-Mart accounts for 22 percent of Revlon sales in 2010. 9. Products can be found in Wal-Mart, Kmart, Target, Walgreens, and CVS. 10. Employee s pokespers ons such as Halle Berry, Jess ica Alba and Jess ica Biel.

Inventory turnover of 3.5 versus the industry average of 4.9. Global market share declined from 4% in 2009 to 3% in 2010. Mission statement is not well developed. $1.2 billion in long term debt on year end 2010 balance sheet. Mitchum’s market sh are decreased by 9.1% in the anti-persp irant deodorants category. 6. Many of Revlon’s top b rands in the US are not marketed ou tside the US. TOTALS

F.

4

0.32

0.08

4

0.32

0.08

4

0.32

0.05

3

0.15

0.05

3

0.15

0.05

3

0.15

0.06

3

0.18

0.09

4

0.36

0.09

4

0.36

0.06

3

0.18

Weight Rating Weighted Score

Weaknesses

1. 2. 3. 4. 5.

0.08

0.05 0.06 0.03 0.06

2 1 1 1

0.10 0.06 0.03 0.06

0.05

1

0.05

0.06

1

0.06

1.00

2.85

SWOT SO Strategies

1. 2.

Hire 2 more celebrity spokespersons in 2012 and 2013 (S4, O10). Increase R&D by $100M on developing a product line for men (S7, O6).

WO Strategies

1. 2.

Invest in business analytics to better predict product demand (W1, O7, O9). Increase marketing and presence in Brazil by $200M (W6, O5).


ST Strategies

1. 2.

Increase advertising by $100M in Latin America (S2, S3, T8). Increase shelf space in Wal-Mart for Revlon products by 20% (S8, T6).

WT Strategies

1.

G.

Redevelop vision and mission statements. (W3, T1, T6).

SPACE Matrix

FP

Conservative

Aggressive

7 6 5 4 3 2 1

CP

-7

-6

-5

-4

-3

-2

-1

1

2

3

4

5

6

7

IP

-1 -2 -3 -4 -5 -6 -7 Defensive

Internal An alysis: Financial Position (FP) Gross Margin Current Ratio ROA Income/Employee Net Profit Margin Financial Position (FP) Average

SP

6 6 7 4 6 5.8

Competitive

Externa l Analy sis: Stability Position (SP) Rate of Inflation Technological Changes Price Elasticity o f Demand Competitive Pressure Barriers to Entry into Ma rket

-2 -2 -2 -6 -3

Stability Position (SP) Average

-3.0


Internal An alysis: Competitive Position (CP) Market Share Product Quality Custo mer Loyalty Inventory Turnover Control over Suppliers and Distributors Competitive Position (CP) Average

H.

-4 -4 -4 -5 -4 -4.2

Externa l Analy sis: Industry Position (IP) Growth Potential Financial Stab ility Ease of Entry into Market Resou rce Utilization Profit Potential

5 3 4 4 7

Industry Position (IP) Average

4.6

Grand Strategy Matrix

Rapid Market Growth

Quadrant II

Quadrant I

Revlon

Weak Competitive Position

Strong Competitive Position

Quadrant III

Quadrant IV

Slow Market Growth


I.

The Internal-External (IE) Matrix The Total IFE Weighted Scores Strong 4.0 to 3.0

Average 2.99 to 2.0

Weak 1.99 to 1.0

4.0

I

II

III

3.0

IV

V

VI

High

The EFE Mediu m Total Weighted Scores

2.0

Revlon

VII

VIII

IX

Low

1.0


J.

QSPM Increase R&D

Increase Advertising

Weight

AS

TAS

AS

TAS

0.06

0

0.00

0

0.00

0.10

2

0.20

3

0.30

0.04

0

0.00

0

0.00

0.05

2

0.10

4

0.20

0.06

2

0.12

4

0.24

0.06

4

0.24

3

0.18

0.06

2

0.12

3

0.18

0.05

4

0.20

2

0.10

0.05

1

0.05

3

0.15

0.04

0

0.00

0

0.00

Weight

AS

TAS

AS

TAS

0.09

3

0.27

2

0.18

0.09

2

0.18

3

0.27

0.09

4

0.36

2

0.18

0.02

4

0.08

1

0.02

0.01

0

0.00

0

0.00

0.06

0

0.00

0

0.00

7. Discounting premium cosmetics can damage the products image.

0.04

0

0.00

0

0.00

8. Avon increased advertising in the quarter to $97 million, up 19% from the prior year q uarter. The company increased advertising mainly in Latin America.

0.03

2

0.06

3

0.09

Opportunities

1. Wealthy consumers were not as affected by the economic downturn. 2. The beauty and cosmetics industry is expected to increase globally by 8.5 percent in 2014 according to recent research from Euro Monitor International. 3. Diversification of the distribution channels. 4. There is an en dless pos sibility to `celebrities’ endorsing fragrances, these products are successful because many cons umers are persu aded b y fame of the celebrity. 5. Brazil provides a s trategic opportunity for the brand to expand in the third-largest beauty market in the world. 6. Men are increasingly concerned with their appearance. 7. Increase in online purchasing, average monthly visits in the U.S. to beauty-related websites topped 60 million and grew 94 percent over past three years. 8. Consumers are interested in products that are made with all natural products. 9. Research sh ows th at by 2015, global women’s p urchasing p ower is expected to increase b y $5 trillion and b eauty is the cat egory thes e cons umers are mos t likely to s pend money. 10. Customers are increasingly sho pping with “green” companies. Threats

1. Intense competition in cosmetics has increased and market initiators with quality providers. 2. New entrants, even though the market has considerably mature in the sens e that it has cap tured cus tomer loyalty, but there is always room for improvement in this field. 3. Premium cos metics are a prime target for counterfeiters. 9%, according to the Global Congress on combating cou nterfeiting, of all the world t rade comprises count erfeit goods . 4. Regulations are increasing due to the voicing of different groups about harmful chemical ingredients in cosmetic products. 5. External challenges b eyond companies control. (i.e. different weather types and natural disasters). 6. Recession is causing people to spend less on makeup products.


Increase R&D Strengths

1. Revlon manufacturers cosmetics, hair color, skin care, fragrances, deodorants and other beauty products. 2. Products are sold in more than 100 countries around the world with s ales out side th e US accounting for 55% of all revenue. 3. Top brands include: Mitchum, Gatineau, ColorSilk, ColorStay, and Ultima II. 4. Sales in 2nd q uarter of 2011 were $351 million for an increase o f 4% versus secon d qu arter 2010. 5. Revlon s uppo rts women’s health p rograms an d many other community efforts inves ting o ver $65 million in medical research programs in 2010. 6. Under the direction of new CEO Alan Ennis 400 jobs were eliminated and a rest ricting of t he o rganizational structu re sav ed the company $30 million in 2009. 7. Revlon s pent $24 million o n R&D in 2010 employing 140 people on these tasks. 8. Wal-Mart accounts for 22 percent of Revlon sales in 2010. 9. Products can be found in Wal-Mart, Kmart, Target, Walgreens, and CVS. 10. Employee spokesp ersons s uch as Halle Berry, Jess ica Alba and Jessica Biel. Weaknesses

1. 2. 3. 4. 5.

Inventory turnover of 3.5 versus the industry average of 4.9. Global market share declined from 4% in 2009 to 3% in 2010. Mission statement is not well developed. $1.2 billion in long term debt on year end 2010 balance sheet. Mitchum’s market s hare decreased by 9.1% in the anti-persp irant deodorants category. 6. Many o f Revlon’s top brands in the US are not marketed ou ts ide the US.

Weight

AS

TAS

AS

TAS

0.08

3

0.24

2

0.16

0.08

1

0.08

3

0.24

0.08

1

0.08

3

0.24

0.05

2

0.10

3

0.15

0.05

0

0.00

0

0.00

0.05

0

0.00

0

0.00

0.06

4

0.24

1

0.06

0.09

0

0.00

0

0.00

0.09

0

0.00

0

0.00

0.06

1

0.06

4

0.24

Weight

AS

TAS

AS

TAS

0.05 0.06 0.03 0.06

0 1 0 0

0.00 0.06 0.00 0.00

0 3 0 0

0.00 0.18 0.00 0.00

0.05

1

0.05

3

0.15

0.06

1

0.06

4

0.24

TOTALS

K.

Increase Advertising

2.95

3.75

Recommendations 1. 2. 3.

Hire 2 more celebrity spokespersons in 2012 and 2013 for $20M Increase R&D by $100M on developing a product line for men. Expand advertising in Latin America b y $100M.


L.

EPS/EBIT Analysis (in millions) Amount Needed: $220M Stock Price: $15.45 Shares Outstanding: 58 Interest Rate: 5% Tax Rate: 30% Common Stock Financing

EBIT Interest EBT Taxes EAT # S hares EPS

Debt Financing

Recessio n

Normal

Boo m

Recessio n

Normal

Boo m

$100 0 100 30 70 72 0.97

$200 0 200 60 140 72 1.94

$300 0 300 90 210 72 2.91

$100 11 89 27 62 58 1.07

$200 11 189 57 132 58 2.28

$300 11 289 87 202 58 3.49

20 Percent Stock EBIT Interest EBT Taxes EAT # S hares EPS

M.

80 Percent Stock

Recessio n

Normal

Boo m

Recessio n

Normal

Boo m

$100 9 91 27 64 61 1.05

$200 9 191 57 134 61 2.20

$300 9 291 87 204 61 3.35

$100 2 98 29 68 69 0.99

$200 2 198 59 138 69 2.00

$300 2 298 89 208 69 3.00

Epilogue For Q3 of 2011, Revlon’s income fell 9 9 percent, mainly because of an income tax expense but the company’s revenue rose during the period. Net income fell to $0.1 million in Q3 that ended Sept. 30, 2011, compared with net income of $12.5 million in the same quarter last year. Revlon had a $22.1 million income tax expense in Q3 of 2011 compared with a $0.6 million benefit a year ago. However, Revlon’s revenue rose 5.7 percent to $337.2 million from $319 million last year. Revlon’s sales of makeup, hair color and Sinful Colors, a nail polish company it acquired in March 2011, helped results. Also in Q3 2011, Revlon’s U.S. revenue rose 10.8 percent to $184.7 million. The increase was primarily driven by t he inclusion of the net sales of Sinful Colors and higher net sales of Revlon color cosmetics and Revlon ColorSilk hair color. In Asia Pacific, Revlon’s sales in Q3 of 2011 were $58.0 million, an increase of $3.5 million, or 6.4 percent, compared to $54.5 million in the same period last year. But in that Q3, sales of Revlon color cosmetics in Japan and Australia, partially offset by higher net sales of Revlon color cosmetics in China. Revlon’s sales for the first nine months of 2011 increased 7.3 percent to $1,021.6 millio n compared to sales of $952.2 million in the first nine months of 2010. In the United States for the first nine months of 2011, sales increased 7.1 percent to $565.8 million in the first nine months of 2011, compared to net sales of $528.1 million in the first nine months of 2010. In Asia Pacific, the company’s sales in the first nine


months of 2011 were $169.6 million, an increase of $20.5 million, or 13.7 percent, compared to $149.1 million in the same period last year. In Europe, Middle East and Africa, Revlon’s sales in the first nine months of 2011 were $152.8 million, an increase of $9.1 million, or 6.3%, compared to $143.7 million in the same period last year. In Latin America, Revlon’s sales in the first nine months of 2011 were $78.9 million, an increase of $0.9 million, or 1.2 percent, compared to $78.0 million in the same period last year. Throughout Canada, Revlon’s sales in the first ni ne months of 2011 were $54.5 million, an increase of $1.2 million, or 2.3 percent.


20 Revlon

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