Revlon, Inc. (NYSE: REV) is, simply put, not one of my favorite investment ideas. However, the market seems to think that the company's second-quarter report is nothing less than beautiful. As I write this, shares are rallying almost 8% (although volume isn't that great, to be honest).
I don't know, I just don't see it. Sales declined over 12%. What's that, you want to strip out currency effects? Okay: sales went down over 7% on that basis. Net income on a reported basis was nothing, 0 cents per share. There were, however, 36 cents of charges on the books. According to Earnings.com, Revlon was expected to lose around 8 cents per share. Another source says that 25 cents before special items was the number to hit. No matter how you slice it, I think we can say that management delivered a significant beat today.
That's all fine and dandy, but I still don't like the Revlon story. The company is struggling to turn itself around, and I think it remains a risky situation. There was no free cash during the quarter, and even if you call the earnings 36 cents per share, that's still 3 cents less than what Revlon made in the year-ago period.
Hey, management is trying. The team in place is doing a lot of restructuring that will hopefully bear fruit down the line. Revlon needs to change its marketing strategies to create more excitement around this big brand name.
Now, trading Revlon might make you some money. However, you certainly don't want to invest for the long-term with this one until a sustainable growth picture truly emerges. If I wanted to place money down on a beauty company, I'd probably look at Avon (NYSE: AVP) first (check out that company's earnings, plus a potential options trade involving the stock, in this piece by Brent Archer).
Disclosure: I don't own any company mentioned; positions can change without notice.
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