Revlon’s bankruptcy filing will give it a chance to catch up with Rihanna, the Kardashians and other hot names in beauty

Revlon Inc.’s filing for bankruptcy will not only give the struggling beauty company a chance to reorganize its debt, but could also serve as an opportunity to overhaul its merchandise and marketing to better appeal to consumers.

The iconic beauty company announced Thursday that it had voluntarily filed for Chapter 11 bankruptcy but would continue to operate. Revlon expects to raise $575 million in debtor-in-possession (DIP) funding to support operations.

Revlon REV,
reported losses of $206.9 million on sales of $2.079 billion in 2021. The Wall Street Journal has broken down the company’s mountain of debt and other debt $3.8 billionwhich included a debt term in Sep 2023 it involved an $866 million loan accidentally repaid by Citigroup Inc. C,
with the bank’s own money. Some lenders returned the money, others kept $500 million of the payment.

“Revlon has an unsustainable capital structure with reported debt exceeding 1.5 times annual sales, leaving the company with limited financial flexibility, including high levels of debt, weak liquidity and impending maturities,” said Dawei Ma, an analyst at Moody’s.

“Additionally, the company faces supply chain disruptions, high inflation, intense competition from many successful larger competitors, and rising interest rates on its high debt burden, partially offset by improved end-market demand as consumers return to more out-of-home activities.” and the company’s cost savings initiatives.”

Kelly Hyman, founder of The Hyman Law Firm, said Revlon’s iconic status will come in handy as the company works its way out of bankruptcy and catches up with other, fresher brands that have tapped into customer desires.

“Consumer tastes and buying habits are changing significantly, and yesterday’s iconic brands will be tomorrow’s nostalgic memories unless they significantly retool, become more financially flexible and adapt to consumer tastes and buying behaviors,” said Hyman MarketWatch by email.

Beauty brands and the famous names behind them use social media to reach their audience. Kylie Jenner, who has 350 million Instagram followers, uses her account to promote her Kylie Cosmetics brand, which also has nearly 26 million followers on a separate account on the platform.

And luxury companies like LVMH Moet Hennessy Louis Vuitton SE MC,
supporting Rihanna’s Fenty line have added another very chic layer to the competition facing Revlon.

“Flexibility and innovation are key now,” Hyman said.

Read: Unlike Target and Walmart, beauty and fashion retailers are posting better-than-expected quarterly results as shoppers fill their social calendars

The good news for Revlon is that beauty is on the rise. UBS Analysts Recently Met With Executives From Ulta Beauty Inc. ULTA,
who say the beauty category is strong.

“Ulta believes the recent surge in cosmetics is due to more than just restocking. Rather, it is likely due in part to a return to socialization,” UBS analysts wrote in the note released on Monday.

“Management noted that the strength of the category meant it didn’t make it
Sense for the leading players to get involved in promotions again.”

UBS rates Ulta stock purchase with a price target of $500.

Ulta is also a top pick for Cowen analysts. The group conducted a survey that found that 70% to 75% expect to spend the same amount on beauty products this year as they did last year.

All of this could help Revlon transform its business.

“Revlon is a brand that everyone knows and trusts; It’s literally a staple for American consumers,” Hyman said.

“And the brand isn’t going away, it’s going to the powder room financially to freshen up.”

Revlon shares rose 91.3% in Friday trade after falling 13.3% on Thursday. Revlon’s bankruptcy filing will give it a chance to catch up with Rihanna, the Kardashians and other hot names in beauty

Brian Lowry

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