Revlon files bankruptcy as supply-side woes prove breaking point
Revlon has filed for bankruptcy protection as the cosmetic giant attempts to get out from under its heavy debt load amid soaring prices and supply chain disruptions.
The company said in a news release that it expects $575 million in financing if the plan wins court approval. The additional funds will support the company’s daily operations.
Under the Chapter 11 filing, the company is able to continue operating while reorganizing its outstanding debt.
The 90-year-old multinational is known for an array of cosmetics and skin care brands, including drugstore favorite Almay and premium label Elizabeth Arden, which Revlon acquired in 2016 after selling more than $2 billion of loans and bonds. It is controlled by billionaire Ronald Perelman’s MacAndrews & Forbes.
Before the coronavirus crisis, Revlon faced growing competition from start-ups backed by celebrities including Kylie Jenner’s Kylie Cosmetics and Rihanna’s Fenty Beauty, which siphoned many of its younger consumers through its social media marketing.
But the pandemic only exacerbated those problems as sales of lipsticks – Revlon’s iconic product – curtailed when people masked up. Worldwide net sales fell 20%, from $2.4 billion in 2019 to $1.9 billion a year later.
In March 2020, Revlon cut 1,000 positions to improve profitability. In November of the same year, Revlon avoided a bankruptcy filing after receiving enough bondholder support.
Debra Perelman, Revlon’s Chief Executive Officer and daughter of Ronald Perelman, said that the company’s “challenging capital structure” has limited its ability to meet consumer demand while navigating “macroeconomic issues.”
“By addressing these complex legacy debt constraints, we expect to be able to simplify our capital structure and significantly reduce our debt, enabling us to unlock the full potential of our globally recognized brands,” Perelman said.
Revlon estimated liabilities of between $1 billion to $10 billion in a court filing. In its most recent earnings report, the company reported $3.3 billion in long-term debt.
Revlon said it’s unable to keep a regular supply of raw materials, putting production at risk, according to the court filing. Nearly one-third of customer demand cannot be timely fulfilled due to the lack of raw materials, it added.
While Perelman said during the March earnings call that the supply chain head winds are “temporary” and that Revlon had sourced additional vendors for key materials, the war in Ukraine and the Covid-19 lockdown in China presented new challenges to the global supply chain.
Shipping from China to the United States doubled in time and quadrupled in cost compared with 2019, the company said.
Experts said that Revlon could take advantage of Chapter 11 provisions to reorganize its portfolio of brands, where some older ones showed unsatisfying performance and lost customers.
“If executed effectively, Revlon could emerge from bankruptcy with a cleaner balance sheet and a better operating profile, improving longer term business prospects,” David Silverman, retail senior director at Fitch Ratings, told RetailDive in email comments.
Corporate bankruptcy filings have reached the lowest levels in early 2022, according to S&P Market Intelligence data, which excludes the smallest business filings.
As of the end of May, 143 bankruptcies have been filed this year, compared with 203 in 2021 and 263 in 2020 during the same period. Among the 143 bankruptcies, only three are retail filings.
However, Revlon’s filing – the first from a major consumer-facing business in years – could signal a downturn in the consumer discretionary sector, which encompasses largely companies selling nonessential products and are sensitive to the business cycle.
In May, inflation reached 8.6% over the last year, which led to financial pressure felt by many households.
According to the Census Bureau data, retail sales are down 0.3% from the previous month in May, as consumers shift to cheaper alternatives amid rising prices.