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Bear of the Day: Revlon (REV)

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Revlon (REV - Free Report) is one of those names in the beauty industry that nearly everyone has heard of. From the iconic shade “Revlon Red” to its everlasting presence in the beauty aisles at your local CVS (CVS - Free Report) or Walgreens (WBA - Free Report) , the cosmetics giant has built a unique niche for itself in the industry since its founding in 1932.

Today, Revlon manufactures, markets, and sells an extensive array of cosmetics and skin care, fragrances, and personal care products under brand names including Revlon, CND, Elizabeth Arden, Almay, Sinful Colors, and Ultima 2.

But brand recognition can only do so much, and the Zacks Rank #5 (Strong Sell) stock has fallen into hard times as of late.

Big Third Quarter Miss

Last quarter, Revlon reported a big loss per share of 38 cents, coming in way below the Zacks Consensus Estimate of 41 cents per share and representing a negative earnings surprise of 192.68%.

Adjusted net loss for the period was $24 million compared to a gain of $13 million in the prior-year period.

Revenues were $667 million, which actually beat our consensus estimate of $605 million and grew 10.2% on an as reported basis.

However, gross profit margin fell by over 3 percentage points to 62% of sales thanks to weakness in the core U.S. selling market.

Revlon’s international sales of $323.3 million were strong, though, and were a highlight of the report, especially once compared to last year’s figure of $250.3 million.

"While our financial performance and sales results in the U.S. remained soft in a challenging retail environment," CEO Fabian Garcia said, "we are encouraged by the global growth of our iconic Revlon and Elizabeth Arden brands [and] our international sales which remain robust."

Earnings in Decline

Revlon’s bottom line is in a perpetual slump at the moment, and this decline doesn’t seem to be going away any time soon.

For the current quarter, Zacks expects the company to see its earnings decrease over 80%, with sales slumping just over 7% during the same time frame.

The rest of fiscal 2017 doesn’t look too bright either; earnings are projected to tumble in the triple digits from the prior year, and the Zacks Consensus now sits at -$1.96, down from -$1.11 just 60 days ago.

Shares Down on the Year

Shares of Revlon have fallen nearly 24% year-to-date compared to the S&P 500’s return of about 16.4%.

Revlon, Inc. Price and Consensus

Revlon, Inc. Price and Consensus | Revlon, Inc. Quote

Revlon has no P/E, since it is currently a loss-making company, but it’s P/S of 0.43 comes in below the industry average of 1.59.

Going forward, Revlon and its management team do have strategies in place to improve growth and their position within the cosmetics industry.

Key initiatives include new advertising campaigns for its Revlon and Elizabeth Arden brands and a relaunch of its Almay franchise, as well as an aggressive product release and continued focus on its fast-growing international markets.

If the company can execute these plans smartly and effectively, Revlon’s profit slump could come to an end.

For investors looking for a cosmetics stock with more near-term potential, they should consider Estee Lauder (EL - Free Report) , a Zacks Rank #1 (Strong Buy) company that anticipates 19.4% earnings growth for the year.

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