Revlon Loss Wider Than Expected

Revlon Inc. (REV), the cosmetics maker controlled by financier Ronald Perelman (search), Friday posted a far wider-than-expected quarterly loss on weak sales in North America, and its shares plunged 15 percent.

The first-quarter net loss narrowed to $46.8 million, or 13 cents per diluted share, from $58.2 million, or 63 cents per share, a year earlier. But analysts, on average, had expected the company to post a loss of 7 cents per share, according to Reuters Estimates.

Revlon (search) said the 2005 period per-share figure benefited from debt-for-equity exchange offers it started in March 2004, which significantly increased common shares outstanding. Revlon had a weighted average 370,126,944 shares outstanding the quarter ended March 31, 2005, up from 92,933,027 a year earlier.

The New York-based company, which had reported its first quarterly profit in six years in the fourth quarter, said it made progress on strengthening its balance sheet.

Revlon, products of which include Almay makeup and Charlie perfume, said sales fell about 2 percent to $301 million, dragged down by a drop in North American sales and reduced licensing revenues. The sales lagged analysts' average revenue target of $311.6 million.

"While we would have liked to have seen better sales growth, this wasn't a bad quarter for a company in this stage of the turnaround," Prudential Equity analyst Constance Maneaty said in a note. She has an "overweight" rating on Revlon shares, with a $3.50 price target.

Shares of Revlon were down 45 cents at $2.77 in afternoon trading on the New York Stock Exchange after falling to $2.73.

"I think it's more of an overreaction," Bill Chappell, an analyst at SunTrust Robinson Humphrey, who has a "buy" rating on Revlon, said of the stock's decline.

"The company doesn't give quarterly guidance and this is seasonally their weakest quarter of the year. In our opinion it masks the underlying strength of the business."

Revlon said the U.S. color cosmetics category grew 1.4 percent in the quarter, citing ACNielsen data, but its share of the category slipped 0.2 points to 21.9 percent.

ACNielsen data reflects about 70 percent of Revlon's U.S. mass market dollar volume. It excludes sales at Wal-Mart and certain regional retailers.

The Revlon brand's share fell to 15.6 percent from 16.4 percent, while Almay grew 0.5 points to 6.3 percent.

Chappell said the decline in the Revlon brand share was just an issue of timing of shipments to retailers.

Sales in North America fell about 6 percent to $194 million, while international sales rose about 4 percent to $107 million, driven by strong shipments, especially in the Far East region, and a boost from favorable foreign currency translation, Revlon said.

On an operating basis, Revlon posted a loss of about $2.1 million, reversing an operating profit of $20.1 million a year ago, due to factors such as increased advertising spending and restructuring costs.

During the quarter, Revlon began a $310 million senior note offering and redeemed certain senior notes, thereby extending the maturities on debt that would have otherwise matured in 2006 and reducing exposure to floating rate debt.