Revlon Inc.

– 2011
Forest David

A. Case Abstract
Revlon is a comprehensive strategic management case that includes the company’s year-end 2010 financial
statements, organizational chart, competitor 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 strategic plan for the company. Headquartered 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 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 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, Excitement and Innovation through high-quality products at affordable 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 the world.

C. Mission Statement (proposed)

Revlon Inc. mission is to emerge as leader in cosmetic and personal care (2) throughout the world (3).
Revlon takes pride using current technology (4) in 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 communities in which we
operate.

1. Customers
2. Products or services
3. Markets
4. Technology
5. Concern for survival, growth, and profitability
6. Philosophy
7. Self-concept

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 8. Concern for public image
9. Concern for employees

D. External Audit
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 endless possibility to `celebrities’ endorsing fragrances, these products are successful
because many consumers are persuaded by 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 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 likely to spend money.
10. Customers are increasingly shopping 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 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.

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Competitive Profile Matrix

Estee Lauder Revlon Avon

Critical Success Factors Weight Rating Score Rating Score Rating Score
Advertising 0.10 4 0.40 3 0.30 2 0.20
Product Quality 0.07 4 0.28 2 0.14 3 0.21
E-commerce 0.10 4 0.40 2 0.20 3 0.30
Consumer Loyalty 0.08 3 0.24 2 0.16 4 0.32
Price Competitive 0.02 2 0.04 3 0.06 4 0.08
Global Expansion 0.12 4 0.48 3 0.36 2 0.24
Financial Position 0.10 4 0.40 3 0.30 1 0.10
Operating Locations 0.09 3 0.27 2 0.18 4 0.36
Management 0.06 3 0.18 4 0.24 2 0.12
Production Capacity 0.08 4 0.32 3 0.24 2 0.16
Technological Advances 0.08 4 0.32 2 0.16 3 0.24
Sales Distribution 0.10 3 0.30 4 0.40 2 0.20
Totals 1.00 3.63 2.74 2.53

EFE Matrix

Opportunities Weight Rating Weighted Score

1. Wealthy consumers were not as affected by the economic
0.06 3 0.18
downturn.
2. The beauty and cosmetics industry is expected to increase
globally by 8.5 percent in 2014 according to recent research from 0.10 3 0.30
Euro Monitor International.
3. Diversification of the distribution channels. 0.04 3 0.12
4. There is an endless possibility to `celebrities’ endorsing
fragrances, these products are successful because many 0.05 3 0.15
consumers are persuaded by fame of the celebrity.
5. Brazil provides a strategic opportunity for the brand to expand in
0.06 4 0.24
the third-largest beauty market in the world.
6. Men are increasingly concerned with their appearance. 0.06 3 0.18
7. Increase in online purchasing, average monthly visits in the U.S.
to beauty-related websites topped 60 million and grew 94 percent 0.06 2 0.12
over past three years.
8. Consumers are interested in products that are made with all
0.05 2 0.10
natural products.
9. Research shows that by 2015, global women’s purchasing power
is expected to increase by $5 trillion and beauty is the category 0.05 3 0.15
these consumers are most likely to spend money.
10. Customers are increasingly shopping with “green” companies. 0.04 2 0.08

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 Threats Weight Rating Weighted Score
1. Intense competition in cosmetics has increased and market
0.09 2 0.18
initiators 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 0.09 2 0.18
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, 0.09 2 0.18
of all the world trade comprises counterfeit goods.
4. Regulations are increasing due to the voicing of different groups
0.02 3 0.06
about harmful chemical ingredients in cosmetic products.
5. External challenges beyond companies control. (i.e. different
0.01 4 0.04
weather types and natural disasters).
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 0.03 3 0.09
mainly in Latin America.
TOTALS 1.00 2.71

E. Internal Audit
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 sales outside the US accounting for
55% of all revenue.
3. Top brands include: Mitchum, Gatineau, ColorSilk, ColorStay, and Ultima II.
4. Sales in 2nd quarter of 2011 were $351 million for an increase of 4% versus second quarter 2010.
5. Revlon supports women’s health programs and many other community efforts investing 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 the
organizational structure saved the company $30 million in 2009.
7. Revlon spent $24 million on 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 spokespersons such as Halle Berry, Jessica Alba and Jessica Biel.

Weaknesses

1. Inventory turnover of 3.5 versus the industry average of 4.9.

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

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Financial Ratio Analysis

Growth Rate Percent Revlon Industry S&P 500

Sales (Qtr vs year ago qtr) 5.70 10.40 14.50
Net Income (YTD vs YTD) NA NA NA
Net Income (Qtr vs year ago qtr) -99.20 4.00 47.20
Sales (5-Year Annual Avg.) -0.16 5.47 8.31
Net Income (5-Year Annual Avg.) NA 7.90 8.76
Dividends (5-Year Annual Avg.) NA 10.67 5.70

Profit Margin Percent

Gross Margin 64.9 53.3 39.8
Pre-Tax Margin 6.4 16.3 18.2
Net Profit Margin 22.5 12.4 13.2
5Yr Gross Margin (5-Year Avg.) 63.0 53.7 39.8

Liquidity Ratios
Debt/Equity Ratio NA 0.80 1.00
Current Ratio 1.5 1.0 1.3
Quick Ratio 1.0 0.7 0.9

Profitability Ratios
Return On Equity NA 32.6 26.0
Return On Assets 33.3 11.1 8.9
Return On Capital 50.6 15.4 11.8
Return On Equity (5-Year Avg.) NA 32.2 23.8
Return On Assets (5-Year Avg.) 2.6 10.0 8.0
Return On Capital (5-Year Avg.) 4.3 13.9 10.8

Efficiency Ratios
Income/Employee 63,796 70,194 126,905
Revenue/Employee 283,837 537,057 1 Mil
Receivable Turnover 7.8 12.5 15.4
Inventory Turnover 3.5 4.9 12.5

Net Worth Analysis (in millions)

Stockholders Equity $ (696)

Net Income x 5 $ 1,635
(Share Price/EPS) x Net Income $ 795
Number of Shares Outstanding x Share Price $ 846
Method Average $ 645

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 IFE Matrix

Strengths Weight Rating Weighted Score

1. Revlon manufacturers cosmetics, hair color, skin care,
0.08 4 0.32
fragrances, deodorants and other beauty products.
2. Products are sold in more than 100 countries around the world
0.08 4 0.32
with sales outside the US accounting for 55% of all revenue.
3. Top brands include: Mitchum, Gatineau, ColorSilk, ColorStay,
0.08 4 0.32
and Ultima II.
4. Sales in 2nd quarter of 2011 were $351 million for an increase of
0.05 3 0.15
4% versus second quarter 2010.
5. Revlon supports women’s health programs and many other
community efforts investing over $65 million in medical research 0.05 3 0.15
programs in 2010.
6. Under the direction of new CEO Alan Ennis 400 jobs were
eliminated and a restricting of the organizational structure saved 0.05 3 0.15
the company $30 million in 2009.
7. Revlon spent $24 million on R&D in 2010 employing 140 people
0.06 3 0.18
on these tasks.
8. Wal-Mart accounts for 22 percent of Revlon sales in 2010. 0.09 4 0.36
9. Products can be found in Wal-Mart, Kmart, Target, Walgreens,
0.09 4 0.36
and CVS.
10. Employee spokespersons such as Halle Berry, Jessica Alba and
0.06 3 0.18
Jessica Biel.

Weaknesses Weight Rating Weighted Score

1. Inventory turnover of 3.5 versus the industry average of 4.9. 0.05 2 0.10
2. Global market share declined from 4% in 2009 to 3% in 2010. 0.06 1 0.06
3. Mission statement is not well developed. 0.03 1 0.03
4. $1.2 billion in long term debt on year end 2010 balance sheet. 0.06 1 0.06
5. Mitchum’s market share decreased by 9.1% in the anti-perspirant
0.05 1 0.05
deodorants category.
6. Many of Revlon’s top brands in the US are not marketed outside
0.06 1 0.06
the US.
TOTALS 1.00 2.85

F. SWOT
SO Strategies

1. Hire 2 more celebrity spokespersons in 2012 and 2013 (S4, O10).

2. Increase R&D by $100M on developing a product line for men (S7, O6).

WO Strategies

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

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 ST Strategies

1. Increase advertising by $100M in Latin America (S2, S3, T8).

2. Increase shelf space in Wal-Mart for Revlon products by 20% (S8, T6).

WT Strategies

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

G. SPACE Matrix

FP
Conservative Aggressive
7

CP IP
-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7
-1

-2

-3

-4

-5

-6

-7
Defensive Competitive
SP

Internal Analysis: External Analysis:

Financial Position (FP) Stability Position (SP)
Gross Margin 6 Rate of Inflation -2
Current Ratio 6 Technological Changes -2
ROA 7 Price Elasticity of Demand -2
Income/Employee 4 Competitive Pressure -6
Net Profit Margin 6 Barriers to Entry into Market -3
Financial Position (FP) Average 5.8 Stability Position (SP) Average -3.0

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Internal Analysis: External Analysis:
Competitive Position (CP) Industry Position (IP)
Market Share -4 Growth Potential 5
Product Quality -4 Financial Stability 3
Customer Loyalty -4 Ease of Entry into Market 4
Inventory Turnover -5 Resource Utilization 4
Control over Suppliers and Distributors -4 Profit Potential 7
Competitive Position (CP) Average -4.2 Industry Position (IP) Average 4.6

H. Grand Strategy Matrix

Rapid Market Growth

Quadrant II Quadrant I

Revlon

Weak Strong
Competitive Competitive
Position Position

Quadrant III Quadrant IV

Slow Market Growth

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I. The Internal-External (IE) Matrix

The Total IFE Weighted Scores

Strong Average Weak
4.0 to 3.0 2.99 to 2.0 1.99 to 1.0
4.0 I II III

High

3.0 IV V VI

The
EFE Revlon
Total Medium
Weighted
Scores

2.0 VII VIII IX

Low

1.0

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J. QSPM

Increase Increase
R&D Advertising
Opportunities Weight AS TAS AS TAS
1. Wealthy consumers were not as affected by the economic
0.06 0 0.00 0 0.00
downturn.
2. The beauty and cosmetics industry is expected to increase
globally by 8.5 percent in 2014 according to recent research from 0.10 2 0.20 3 0.30
Euro Monitor International.
3. Diversification of the distribution channels. 0.04 0 0.00 0 0.00
4. There is an endless possibility to `celebrities’ endorsing
fragrances, these products are successful because many 0.05 2 0.10 4 0.20
consumers are persuaded by fame of the celebrity.
5. Brazil provides a strategic opportunity for the brand to expand in
0.06 2 0.12 4 0.24
the third-largest beauty market in the world.
6. Men are increasingly concerned with their appearance. 0.06 4 0.24 3 0.18
7. Increase in online purchasing, average monthly visits in the U.S.
to beauty-related websites topped 60 million and grew 94 percent 0.06 2 0.12 3 0.18
over past three years.
8. Consumers are interested in products that are made with all
0.05 4 0.20 2 0.10
natural products.
9. Research shows that by 2015, global women’s purchasing power
is expected to increase by $5 trillion and beauty is the category 0.05 1 0.05 3 0.15
these consumers are most likely to spend money.
10. Customers are increasingly shopping with “green” companies. 0.04 0 0.00 0 0.00

Threats Weight AS TAS AS TAS

1. Intense competition in cosmetics has increased and market
0.09 3 0.27 2 0.18
initiators 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 0.09 2 0.18 3 0.27
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, 0.09 4 0.36 2 0.18
of all the world trade comprises counterfeit goods.
4. Regulations are increasing due to the voicing of different groups
0.02 4 0.08 1 0.02
about harmful chemical ingredients in cosmetic products.
5. External challenges beyond companies control. (i.e. different
0.01 0 0.00 0 0.00
weather types and natural disasters).
6. Recession is causing people to spend less on makeup products. 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 quarter. The company increased advertising 0.03 2 0.06 3 0.09
mainly in Latin America.

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 Increase Increase
R&D Advertising
Strengths Weight AS TAS AS TAS
1. Revlon manufacturers cosmetics, hair color, skin care,
0.08 3 0.24 2 0.16
fragrances, deodorants and other beauty products.
2. Products are sold in more than 100 countries around the world
0.08 1 0.08 3 0.24
with sales outside the US accounting for 55% of all revenue.
3. Top brands include: Mitchum, Gatineau, ColorSilk, ColorStay,
0.08 1 0.08 3 0.24
and Ultima II.
4. Sales in 2nd quarter of 2011 were $351 million for an increase of
0.05 2 0.10 3 0.15
4% versus second quarter 2010.
5. Revlon supports women’s health programs and many other
community efforts investing over $65 million in medical research 0.05 0 0.00 0 0.00
programs in 2010.
6. Under the direction of new CEO Alan Ennis 400 jobs were
eliminated and a restricting of the organizational structure saved 0.05 0 0.00 0 0.00
the company $30 million in 2009.
7. Revlon spent $24 million on R&D in 2010 employing 140 people
0.06 4 0.24 1 0.06
on these tasks.
8. Wal-Mart accounts for 22 percent of Revlon sales in 2010. 0.09 0 0.00 0 0.00
9. Products can be found in Wal-Mart, Kmart, Target, Walgreens,
0.09 0 0.00 0 0.00
and CVS.
10. Employee spokespersons such as Halle Berry, Jessica Alba and
0.06 1 0.06 4 0.24
Jessica Biel.

Weaknesses Weight AS TAS AS TAS

1. Inventory turnover of 3.5 versus the industry average of 4.9. 0.05 0 0.00 0 0.00
2. Global market share declined from 4% in 2009 to 3% in 2010. 0.06 1 0.06 3 0.18
3. Mission statement is not well developed. 0.03 0 0.00 0 0.00
4. $1.2 billion in long term debt on year end 2010 balance sheet. 0.06 0 0.00 0 0.00
5. Mitchum’s market share decreased by 9.1% in the anti-perspirant
0.05 1 0.05 3 0.15
deodorants category.
6. Many of Revlon’s top brands in the US are not marketed outside
0.06 1 0.06 4 0.24
the US.
TOTALS 2.95 3.75

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

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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 Debt Financing

Recession Normal Boom Recession Normal Boom
EBIT $100 $200 $300 $100 $200 $300
Interest 0 0 0 11 11 11
EBT 100 200 300 89 189 289
Taxes 30 60 90 27 57 87
EAT 70 140 210 62 132 202
# Shares 72 72 72 58 58 58
EPS 0.97 1.94 2.91 1.07 2.28 3.49

20 Percent Stock 80 Percent Stock

Recession Normal Boom Recession Normal Boom
EBIT $100 $200 $300 $100 $200 $300
Interest 9 9 9 2 2 2
EBT 91 191 291 98 198 298
Taxes 27 57 87 29 59 89
EAT 64 134 204 68 138 208
# Shares 61 61 61 69 69 69
EPS 1.05 2.20 3.35 0.99 2.00 3.00

M. Epilogue
For Q3 of 2011, Revlon’s income fell 99 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 the
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 million 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

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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 nine months of 2011 were $54.5 million, an increase of $1.2
million, or 2.3 percent.

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