Revlon, INC 2011

Group I

REVLON, INC

Presented to: Dr. Cherine Souliman

Group members:

Rania El Mekawy

Seem Pharaon

Amr Bishara

Amro Fayed

Hazem Amer

Table of ContentsIntroduction.................................................................................................................................................................. 2

History........................................................................................................................................................................ 2

Vision...........................................................................................................................................................................5

Mission....................................................................................................................................................................... 5

Analysis........................................................................................................................................................................... 5

External Analysis................................................................................................................................................... 5

Opportunities:.................................................................................................................................................... 5

Threats:................................................................................................................................................................. 5

External Factors Evaluation (EFE) Matrix..................................................................................................6

Internal Analysis....................................................................................................................................................7

Strength:................................................................................................................................................................7

Weaknesses:........................................................................................................................................................7

Internal Factors Evaluation (IFE) Matrix....................................................................................................8

SWOT Matrix.................................................................................................................................................................9

Competitive Profile Matrix...................................................................................................................................10

Strategic Position & Action Evaluation (SPACE) Matrix.........................................................................11

BCG Matrix.................................................................................................................................................................. 13

Financial Ratios.........................................................................................................................................................15

Financial Ratios Analysis.................................................................................................................................15

Liquidity Ratios................................................................................................................................................15

Leverage Ratios................................................................................................................................................16

Activity Ratios...................................................................................................................................................16

Profitability Ratios..........................................................................................................................................17

Growth Ratios...................................................................................................................................................18

Grand Strategy Matrix (GSM)..............................................................................................................................20

Quantitative Strategic Planning Matrix (QSPM).........................................................................................21

Recommendation:....................................................................................................................................................22

Conclusion:..................................................................................................................................................................22

1 | P a g e

Introduction

History

Revlon was founded in the midst of the Great Depression, 1932, by Charles Revson and his brother Joseph, along with a chemist, Charles Lachman, who contributed the "L" in the REVLON name.

Starting with a single product — a new type of nail enamel — the three founders pooled their resources and developed a unique manufacturing process. Using pigments instead of dyes, Revlon developed a variety of new shades of opaque nail enamel. In 1937, Revlon started selling the polishes in department stores and drug stores. In six years the company became a multimillion dollar organization. By 1940, Revlon offered an entire manicure line, and added lipstick to the collection. During World War II Revlon created makeup and related products for the U.S. Army, which was honored in 1944 with the Army-Navy ‘E’ Award for Excellence.

By the end of the war, Revlon listed itself as one of America's top five cosmetic houses. Expanding its capabilities, the company bought Graef & Schmidt, a cutlery manufacturer seized by the government in 1943 because of German business ties. This acquisition made it possible for Revlon to produce its own manicure and pedicure instruments, instead of buying them from outside supply sources.

Up until the 1940s, Revlon's magazine ads were drawn by hand and mostly in black and white. Beginning in 1945, Revlon began launching full-color photographic advertisements in major magazines and stores across the country. Revlon introduced matching nail polish and lipsticks with exotic and unique names. These ads were taken by the top fashion photographers of the day including Richard Avedon, Cecil Beaton, and John Rawlings. Some of these ads were for "Paint the Town Pink" and 1945's "Fatal Apple" with Dorian Leigh. In 1947 Revlon introduced "Bachelor's Carnation" and in 1948, "Sweet Talk".

In 1950, Revlon introduced a red lipstick and nail enamel called "Where's the Fire?" Revlon used the word "fire" again later in their "Fire and Ice" ads.

One of the world's first supermodels, Dorian Leigh, starred in some of Revlon's most memorable advertisements of all time. In 1946, Dorian was covered in purple flowers and wrapped in a pale purple sheet for "Ultra Violet." In 1947, Dorian appeared in "Fashion Plate." In 1953, at the age of 36, she appeared in "Cherries in the Snow." Later that year she appeared in the legendary "Fire and Ice" ad shot by Richard Avedon.

The company had begun to market its products overseas at the end of the 1950s. By 1962, when Revlon debuted in Japan, there were subsidiaries in France, Italy, Argentina, Mexico, and Asia. Revlon's entrance into the Japanese market was typical of its international sales strategy. Instead of adapting its ads and using Japanese models, Revlon chose to use its basic U.S. advertising and models. Japanese women loved the American look, and the success of this bold approach was reflected in the 1962 sales figures, which were almost $164 million.

2 | P a g e

In 1973, Revlon introduced Charlie, a fragrance designed for the working woman's budget. Geared to the under-30 market, Charlie model Shelley Hack in Ralph Lauren clothes, personified the independent woman of the 1970s. This is the first perfume ad to feature a woman wearing pants. Charlie was an instant success, helping to raise Revlon's net sales figures to $506 million for 1973 and to almost $606 million the following year. Shelley Hack appeared on Oprah in 2007 to talk about the power of these Charlie print and commercial ads. Their follow-up fragrance, Jontue, quickly became the number two best seller.

By the mid-1980s, Revlon's health-care companies, rather than Revlon's beauty concerns, were innovating and expanding. Reluctant to initiate beauty-product development, Revlon lost ground to Estée Lauder. Lauder was a privately held company whose marketing strategy of high prices with accompanying gifts, were featured in upscale department stores, not drugstores where Revlon was found. Estee Lauder's "high-class" ads also featured only one supermodel, Paulina Porizkova, shot by famous Chicago fashion photographer, Victor Skrebneski. This caused Revlon's share to drop from 20 percent to 10 percent of department store cosmetics sales.

On November 5, 1985, at a price of $58 per share, totaling $2.7 billion, Revlon was sold to Pantry Pride (later renamed to Revlon Group, Inc.), a subsidiary of Ronald Perelman's MacAndrews & Forbes Holdings. The highly leveraged buyout--engineered with the help of junk bond king Michael P. Milken--saddled Revlon with a huge $2.9 billion debt load, which became an albatross around the company's neck for years to come. Pantry Pride Inc. offered to buy any or all of Revlon's 38.2 million outstanding shares for $47.5 a share when its street price stood at $45 a share. Initially rejected, he repeatedly raised his offer until it reached $53 a share while fighting Revlon's management every step of the way. Forstmann Little & Company swooped in at $56 a share, a brief public bidding war ensued, and Perelman triumphed with an offer of $58 a share. Perelman paid $1.8 billion to Revlon's shareholders, but he also paid $900 million of other costs associated with the purchase. Perelman had Revlon sell four divisions: two for $1 billion, the vision care division for $574 million, and the National Health Laboratories division which became a publicly owned corporation in 1988. Additional make-up lines were purchased for Revlon: Max Factor in 1987 and Betrix in 1989; later sold to Procter & Gamble in 1991.

Despite the enormously successful campaigns of the 1980s and 1990s featuring models, Revlon decided to drop almost all fashion models and to instead focus on female movie stars. Their ads featured a number of different actresses including Kate Bosworth, Jaime King, Halle Berry (she has appeared in dozens of Revlon ads since 1996), Susan Sarandon, Melanie Griffith, Julianne Moore, Eva Mendes, Jessica Alba, Jennifer Connelly, Beau Garrett, and Jessica Biel.

3 | P a g e

VisionRevlon Inc. Vision is to satisfy the needs of their customers with glamour,

excitement and innovation through high-quality products at affordable prices.

MissionTo emerge as the dominant cosmetics and personal care firm through the twenty-

first century by appealing to young/trendy women, health-conscious women (skin care), and older women with its variety of brands.

Analysis

External Analysis

Opportunities:1. The “baby boomers”. The 75 million Americans born between 1946 and 1964 are a

significant market for the cosmetic/personal care industry. They have high levels of disposable income and are brand loyal consumers.

2. The United States teenage market (ages 12-19)3. The fast growing Hispanic American segment4. The Asian American growing population and there are significant opportunities.5. Many men are trying cosmetics in an effort to improve their appearance.6. The market for hair coloring is expanding with the need of more vibrant colors.7. The value of the dollar dropped and thus is an opportunity for a global business in

countries chasing more cosmetics and fragrances such as China and Middle East.8. Good reputation can acquire a good brand to increase market share in other

countries.

Threats:1. Aging population and they tend to spend less on cosmetics.2. Consumer concerns about product safety and the use of animal testing by cosmetics

companies3. Intense competition in products and prices.4. Americans have less disposable income for purchasing cosmetics.5. Major retailers are reducing inventory levels, leaving cosmetic companies with

fewer opportunities to stock additional products on retail store shelves.

4 | P a g e

External Factors Evaluation (EFE) MatrixKey External Factor

Weight RatingWeighted ScoreOpportunities:

1. The “baby boomers”. The 75 million Americans born between 1946 & 1964 are a significant market for the cosmetic care industry. They have high levels of disposable income and are brand loyal consumers.

0.12 3 0.36

2. The United States teenage market (ages 12-19) 0.08 4 0.323. The fast growing Hispanic American segment 0.08 3 0.244. The Asian American growing population and there

are significant opportunities.0.10 3 0.30

5. Many men are trying cosmetics in an effort to improve their appearance.

0.06 4 0.24

6. The market for hair coloring is expanding with the need of more vibrant colors.

0.06 2 0.12

7. The value of the dollar dropped and thus is an opportunity for a global business in countries chasing more cosmetics and fragrances such as China and Middle East.

0.11 1 0.11

8. Good reputation can acquire a good brand to increase market share in other countries.

0.09 4 0.36

Threats:1. Aging population and they tend to spend less on

cosmetics.0.05 2 0.10

2. Consumer concerns about product safety and the use of animal testing by cosmetics companies.

0.08 1 0.08

3. Intense competition in products and prices. 0.09 2 0.184. Americans have less disposable income for purchasing

cosmetics.0.05 3 0.15

5. Major retailers are reducing inventory levels, leaving cosmetic companies with fewer opportunities to stock additional products on retail store shelves.

0.03 2 0.06

Total 1.00 2.62

5 | P a g e

Internal Analysis

Strength:1. Strong social responsibility programs.2. Revlon accelerates cost reduction and margin improvement3. Spends good on marketing campaign4. Continuous research and product development5. Increase operating efficiency as a result of consolidation of production facilities6. The primary customers are large mass merchandisers and chain drug stores (supply

chain)7. Revlon have many recognizable products.8. High sales (1.3 billion)

Weaknesses:1. A huge amount of debt2. Prices are higher than competitors3. High expenses and lack of financial resources4. Decrease in current assets and increase in current liabilities5. Poor supply chain6. Weak management team7. Not diversified8. Constant organizational restructuring9. High operational cost10. Management instability (3 CEO s in 6 years)11. No growth in sale (2004-2006)

6 | P a g e

Internal Factors Evaluation (IFE) Matrix

Key Internal FactorWeight Rating

Weighted ScoreStrengths:

1. Strong social responsibility programs. 0.09 4 0.36

2. Revlon accelerates cost reduction and margin improvement

0.05 3 0.15

3. Spends good on marketing campaign 0.15 4 0.604. Continuous research and product development 0.06 4 0.245. Increase operating efficiency as a result of consolidation

of production facilities0.07 3 0.21

6. The primary customers are large mass merchandisers and chain drug stores (supply chain)

0.05 3 0.15

7. Revlon have many recognizable products. 0.06 3 0.188. High sales (1.3 billion) 0.07 2 0.14

Weakness:1. A huge amount of debt 0.07 2 0.142. Prices are higher than competitors 0.04 1 0.043. High expenses and lack of financial resources 0.05 2 0.104. Decrease in current assets and increase in current

liabilities0.05 2 0.10

5. Poor supply chain 0.03 1 0.036. Weak management team 0.02 1 0.027. Not diversified 0.03 1 0.038. Constant organizational restructuring 0.03 3 0.099. High operational cost 0.03 1 0.0310. Management instability (3 CEO s in 6 years) 0.02 1 0.0211. No growth in sale (2004-2006) 0.03 1 0.03Total 1.00 2.67

7 | P a g e

SWOT MatrixStrengths Weaknesses

S1: Strong social responsibility programs. W1: A huge amount of debtS2: Revlon accelerates cost reduction and margin improvement W2: Prices are higher than competitorsS3: Spends good on marketing campaign W3: High expenses and lack of financial resourcesS4: Continuous research and product development W4: Decrease in current assets and increase in current liabilitiesS5: 5. Increase operating efficiency as a result of consolidation ofproduction facilities

W5: Poor supply chain

S6: The primary customers are large mass merchandisers and chaindrug stores (supply chain)

W6: Weak management team

S7: Revlon have many recognizable products. W7: Not diversified

S8: High sales (1.3 billion) W8: Constant organizational restructuringW9: High operational costW10: Management instability (3 CEO s in 6 years)

W11: No growth in sale (2004-2006)

O1: The “baby boomers”. The 75 million Americans bornbetween 1946 and 1964 are a significant market for thecosmetic/personal care industry. They have high levels ofdisposable income and are brand loyal consumers.

SO STRATEGIES WO STRATEGIES

O2: The United States teenage market (ages 12-19)Develop our market shares in the various segments especially in the market of hair coloring. (S3, S4, S7, O1, O6)

Segmented Products according to income & taste (W2, W7, O1, O2, O5, O6)

O3: The fast growing Hispanic American segmentDevelop our numeric & weighted distribution in the various segments. (S6, O1, O2, O3)

Outsourcing (W3, W5, W6, W9, O4, O7, O8)

O4: The Asian American growing population and there aresignificant opportunities.

Introduce the products in untapped Markets. (S5, S7, S8, O3, O4, O7, O8)

O5: Many men are trying cosmetics in an effort to improvetheir appearance.

Cost reduction projects (S2, O7)

O6: The market for hair coloring is expanding with the needof more vibrant colors.

Engaging in more ATL and CSRs (S1, S3, O2, O5)

O7: The value of the dollar dropped and thus is anopportunity for a global business in countries chasing morecosmetics and fragrances such as China and Middle East.

O8: Good reputation can acquire a good brand to increasemarket share in other countries.

T1: Aging population and they tend to spend less oncosmetics.

ST STRATEGIES WT STRATEGIES

T2: Consumer concerns about product safety and the use ofanimal testing by cosmetics companies

Develop new plans to target low income segment. (S3, S4, S7, T1, T4)

HR Development & Recruiting System (W6, W8, W10, T3)

T3: Intense competition in products and prices.Keep monitoring the market and develop market intelligence reports. (S4, T3)

Develop new plans to target the untapped aging population with specific products (W5, W11, T1)

T4: Americans have less disposable income for purchasingcosmetics.

Build on the regional advertising campaign (ATL) to communicate our advantages and on product safety. (S1, S3, S4, S7, T2, T3)

T5: Major retailers are reducing inventory levels, leavingcosmetic companies with fewer opportunities to stockadditional products on retail store shelves.

Oppo

rtunit

iesTh

reats

8 | P a g e

Competitive Profile MatrixRevlon L’Oreal Estee Lauder

Critical Success Factors

Weight RatingWeighted Score

RatingWeighted Score

RatingWeighted Score

Price 0.15 3 0.45 4 0.6 3 0.45Financial Position 0.1 3 0.3 4 0.4 4 0.4Consumer Loyalty 0.1 4 0.4 4 0.4 3 0.3Advertising 0.1 3 0.3 4 0.4 3 0.3Product Quality 0.1 4 0.4 4 0.4 3 0.3Innovation 0.15 3 0.45 3 0.45 3 0.45Market Share 0.1 3 0.3 3 0.3 3 0.3Management 0.06 2 0.12 4 0.24 3 0.18Global Expansion 0.15 3 0.45 4 0.6 4 0.6Total 1 3.17 3.79 3.28

9 | P a g e

Strategic Position & Action Evaluation (SPACE) MatrixFinancial Position (FP) RatingsOperating income 1

Net income 1

Working capital 1

Leverage 1

Inventory turnover 2

Earnings per share 1

7

Industry Position (IP)Growth potential 4

Profit potential 3

Ease of entry into the market 3

Resource utilization 4

14

Stability Position (SP) Ratings

Price elasticity of demand -5

Competitive pressure -4

Demand variability -4

Price range of competing firms -5

Risk involved in business -2

-20

Competitive Position (CP)

Control over supplier and distributors -3

Market share -4

Customer loyalty -3

Product life cycle -4

Product price -3

-17

10 | P a g e

Conclusion

FP average is -20/ 5 = -4.00 IP average is +14/ 4 = +3.50

CP average is -17/5 = -3.40 SP average is +7/ 6 = +1.17

X-axis: -3.40 + (+3.50) = +0.10

Y-axis: -4.00 + (+1.17) = -2.83

+7

+6

+5

+4

+3

+2

+1

-7 -6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6 +7

-1

-2

-3

-4 Competitive

-5 Strategy

-6

-7

FP

IP

SP

CP

Revlon should pursue a competitive strategy

11 | P a g e

BCG Matrix

Star: Revlon Brand: 13.4% market share, very well-known brand name and its

International net sales in the first six months of 2007 increased by 2.6% versus first six months in 2006.

Women’s hair color: It’s the most growing category among all categories and the only category that increased its market share from 2006 to 2007 from 9% to 11.2% with 2.2% change.

Cash Cow: Revlon Beauty tools: Highest market share among all categories 24.3% Color cosmetics: 19.5% market share, the cosmetics and personal care are

impacted with two major changes in the United States: the aging population and the change in proportion of racial and ethnic population. The 75 Million

12 | P a g e

Star: Revlon Brand Question Mark: Almay Brand

Women’s hair color Deodorants

Cash Cow: Revlon Beauty tools Dogs: Vital Radiance brand

Color cosmetics

Americans born between 1946 and 1964 are a significant market for the cosmetics and personal care industry.

Question Mark: Almay Brand: Only 6.1% of the market and its market share dropped from 6.4

to 6.1 in 2007 with -0.3% change. Deodorants: Only 5.9% of the market and its market share dropped from 6.4

to 5.9 in 2007 with -0.5% change.

Dog: Vital Radiance brand: Offered special color palette products and hydrating

formula products designed to appeal to older women and baby boomers. However, the new brand was not well received by the market as other companies already provided competing products with lower prices, so the brand is dying.

13 | P a g e

Financial Ratios1

LIQUIDITY RATIOS 2010 2009 2008 2007 2006 2005Current ratio 1.49 1.30 1.32 1.37 1.29 1.26

Quick ratio 1.13 0.92 0.85 0.89 0.80 0.79LEVERAGE RATIOS

Debt-to-total asset ratio 1.64 2.30 2.37 2.22 2.32 2.05Long term debt-to-equity ratio 2.10 1.47 1.44 1.50 1.45 1.52

ACTIVITY RATIOSFixed Assets turnover ratio 2.16 3.32 3.50 3.31 3.00 2.95

Total Assets turnover 1.22 1.63 1.66 1.54 1.43 1.28PROFITABILITY RATIOS

Gross Profit Margin 66% 63% 64% 63% 59% 62%Net Profit Margin 24.8% 3.8% 4.3% -1.2% -18.9% -6.3%

Return on Total Assets 0.301 0.061 0.071 -0.018 -0.270 -0.080Return on Total Equity 0.470 0.047 0.052 -0.015 -0.204 -0.076

Earnings Per share (EPS) 6.31 0.95 1.13 -0.31 -5.96 -2.22GROWTH RATIOS

Net Sales 2.0% -3.8% -1.5% 2.7% -0.1% 2.7%Net income 571% -16% 460% 94% -200% 41%

EPS 564% -16% 465% 95% -63% -

Net Sales 1321.40 1295.90 1346.80 1367.10 1331.40 1332.30Gross Profit 866.10 821.20 855.90 861.40 785.90 824.20Net Income 327.30 48.80 57.90 -16.10 -251.30 -83.70

Financial Ratios Analysis

Liquidity Ratios

A company's liquidity is its ability to meet its near-term obligations, and it is a major measure of financial health. Liquidity can be measured through several ratios.

Current Ratio: The current ratio is the most basic liquidity test. It signifies a company's ability to meet its short-term liabilities with its short-term assets. A current ratio greater than or equal to one indicates that current assets should be able to satisfy near-term obligations. A current ratio of less than one may mean the firm has liquidity issues.

Current Ratio = (Current Assets) / Current Liabilities

1 http://phx.corporate-ir.net/phoenix.zhtml?c=81595&p=irol-reportsannual

14 | P a g e

Quick Ratio: The quick ratio is a tougher test of liquidity than the current ratio. It eliminates certain current assets such as inventory and prepaid expenses that may be more difficult to convert to cash. Like the current ratio, having a quick ratio above one means a company should have little problem with liquidity. The higher the ratio, the more liquid it is, and the better able the company will be to ride out any downturn in its business.

Quick Ratio = (Cash + Accounts Receivable + Short-Term or Marketable Securities) / (Current Liabilities)

In Revlon’s case it’s obvious that the company is able to improve its liquidity position from 2005 to 2010 regarding both liquidity measures the current and the quick. Revlon was able to increase its current ratio from 1.26 to 1.49 and its quick ratio from 0.79 to 1.13.

Leverage RatiosDebt-to-total asset ratio is used to measure a company's financial risk by determining how much of the company's assets have been financed by debt. It is calculated by adding short-term and long-term debt and then dividing by the company's total assets.

Long term debt-to-equity ratio is a measurement representing the percentage of a corporation's assets that are financed with loans and financial obligations lasting more than one year. The ratio provides a general measure of the financial position of a company, including its ability to meet financial requirements for outstanding loans. A year-over-year decrease in this metric would suggest the company is progressively becoming less dependent on debt to grow their business. The calculation for the long term debt to total assets ratio is:

Long term debt to total asset ratio = long term debt / total assets

Regarding the leverage ratios the company was able to decrease the risk of financing its assets by depts. The Debt-to-total asset ratio was able to decrease from 2.05 in 2005 to 1.64 in 2010 however, the Long term debt-to-equity ratio increased from 1.52 in 2005 to 2.10 in 2010 which indicates that the company is depending more on long term debts such as loans on financing its assets.

Activity RatiosFixed Assets Turnover Ratio is a financial ratio of net sales to fixed assets. The fixed-asset turnover ratio measures a company's ability to generate net sales from fixed-asset investments - specifically property, plant and equipment (PP&E) - net of depreciation. A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenues.The fixed-asset turnover ratio is calculated as:

15 | P a g e

Total Assets Turnover Ratio (TATR) is used to measure the firm's ability to utilize its assets to generate sales. It is an indication to the firm's operation efficiency. A lower ratio means inefficient utilization of assets. It’s calculated as:

Total Assets Turnover Ratio = Net Sales / Total Assets

With regard to the Fixed Assets Turnover Ratio it indicates that the company has been efficient in using the investment in fixed assets to generate revenues from 2005 to 2009; however, it showed a sudden drop in 2010. Also, the Total assets turnover ratio has been increasing from 2005 to 2009 but dropped in 2010 which means that the company was efficient in utilizing its assets until 2009 but something happened that made it become inefficient in 2010.

Profitability Ratios Gross Profit Margin is a financial metric used to assess a firm's financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for paying additional expenses and future savings.Calculated as:

Revlon’s Gross profit Margin is fluctuating throughout the years. It dropped from 2005 to 2006 then witnessed a steady increase for two years when it dropped again in 2009 then increase two percentage points in 2010 to reach 66%.

Net Profit Margin is a ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings.Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 20% profit margin, for example, means the company has a net income of $0.20 for each dollar of sales. 

Revlon has been suffering from a negative net profit margin for 3 successive years. However, in 2010 Revlon was able to gain a net profit margin of 24.8% which is considered a great success achieved by the company.

16 | P a g e

Return on Total Assets is a ratio that measures a company's earnings before interest and taxes (EBIT) against its total net assets. The ratio is considered an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid. To calculate ROTA:

Return on Total Equity is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.  ROE is expressed as a percentage and calculated as:

Return on Equity = Net Income/Shareholder's Equity

Net income is for the full fiscal year (before dividends paid to common stock holders but after dividends to preferred stock.) Shareholder's equity does not include preferred shares.

Earnings Per share (EPS) are the portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability.Calculated as:

When calculating, it is more accurate to use a weighted average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time. However, data sources sometimes simplify the calculation by using the number of shares outstanding at the end = of the period. Diluted EPS expands on basic EPS by including the shares of convertibles or warrants outstanding in the outstanding shares number. 

Growth RatiosNet Sales is the amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any discounts allowed. The sales number reported on a company's financial statements is a net sales number, reflecting these deductions.

17 | P a g e

Revlon is experiencing a fluctuating pattern in net sales since 2005 to reach a 2% growth in 2010.

Net Income is a company's total earnings (or profit). Net income is calculated by taking revenues and adjusting for the cost of doing business, depreciation, interest, taxes and other expenses. This number is found on a company's income statement and is an important measure of how profitable the company is over a period of time. The measure is also used to calculate earnings per share. 

Again, Revlon’s net income has been fluctuating up and down over the years to reach a 571% growth in 2010 which was preceded by a decline of 16% in 2009, a growth of 460% in 2008, a growth of 94% in 2007 and a decline of 200% in 2006.

Gross Profit is a company's revenue minus its cost of goods sold. Gross profit is a company's residual profit after selling a product or service and deducting the cost associated with its production and sale. 

Revlon’s Gross Profit has been fluctuating along the years but within the same range to reach 886.10 in 2010 preceded by 821.20, 855.90, 861.40, 785.90 & 842.20 in 2009, 2008, 2007, 2006 & 2005 respectively.

18 | P a g e

Grand Strategy Matrix (GSM)

Quadrant II Quadrant IMarket Development Market DevelopmentMarket Penetration Market Penetration

Product Development Product DevelopmentHorizontal Integration Forward Integration

Divestiture Backward IntegrationLiquidation Horizontal Integration

Related DiversificationQuadrant III Quadrant IV

Retrenchment Related DiversificationRelated Diversification Unrelated Diversification

Unrelated Diversification Joint VenturesDivestitureLiquidation

Rapid Market Growth

Weak Competitive Position Strong Competitive Position

Slow Market Growth

Rapid Market growth vs weak competitive competition

19 | P a g e

Quantitative Strategic Planning Matrix (QSPM)

20 | P a g e

Key factors Weight AS TAS AS TAS AS TASOpportunitiesO1: The “baby boomers”. The 75 million Americans born between 1946 and 1964 are a significant market for the cosmetic/personal care industry. They have high levels of disposable income and are brand loyal consumers.

0.12 4 0.48 2 0.24 3 0.36

O2: The United States teenage market (ages 12-19) 0.08 3 0.24 2 0.16 3 0.24O3: The fast growing Hispanic American segment 0.08 3 0.24 2 0.16 2 0.16O4: The Asian American growing population and there are significant opportunities. 0.1 3 0.3 4 0.4 4 0.4O5: Many men are trying cosmetics in an effort to improve their appearance. 0.06 2 0.12 2 0.12 2 0.12O6: The market for hair coloring is expanding with the need of more vibrant colors. 0.06 4 0.24 3 0.18 3 0.18O7: The value of the dollar dropped 0.08 _ _ 4 0.32 4 0.32O8: Good reputation can acquire a good brand to increase market share in other countries. 0.09 3 0.27 3 0.27 4 0.36ThreatsT1: Aging population and they tend to spend less on cosmetics. 0.08 3 0.24 2 0.16 2 0.16T2: Consumer concerns about product safety and the use of animal testing by cosmetics companies 0.08 2 0.16 1 0.08 1 0.08T3: Intense competition in products and prices. 0.09 4 0.36 4 0.36 4 0.36T4: Americans have less disposable income for purchasing cosmetics. 0.05 3 0.15 2 0.1 2 0.1T5: Major retailers are reducing inventory levels, 0.03 1 0.03 1 0.03 2 0.06

1

StrengthsS1: Strong social responsibility programs. 0.09 4 0.36 2 0.18 3 0.27S2: Revlon accelerates cost reduction and margin improvement 0.05 4 0.2 3 0.15 2 0.1S3: Spends good on marketing campaign 0.15 3 0.45 4 0.6 2 0.3S4: Continuous research and product development 0.06 4 0.24 4 0.24 2 0.12S5: Increase operating efficiency as a result of consolidation of production facilities 0.07 3 0.21 3 0.21 2 0.14S6: The primary customers are large mass merchandisers and chain drug stores (supply chain) 0.05 4 0.2 4 0.2 1 0.05S7: Revlon have many recognizable products. 0.06 3 0.18 4 0.24 2 0.12S8: High sales (1.3 billion) 0.07 3 0.21 3 0.21 2 0.14WeaknessesW1: A huge amount of debt 0.07 1 0.07 1 0.07 1 0.07W2: Prices are higher than competitors 0.04 3 0.12 2 0.08 2 0.08W3: High expenses and lack of financial resources 0.05 2 0.1 2 0.1 3 0.15W4: Decrease in current assets and increase in current liabilities 0.05 2 0.1 1 0.05 3 0.15W5: Poor supply chain 0.03 2 0.06 1 0.03 3 0.09W6: Weak management team 0.02 3 0.06 2 0.04 3 0.06W7: Not diversified 0.03 4 0.12 1 0.03 4 0.12W8: Constant organizational restructuring 0.03 2 0.06 2 0.06 3 0.09W9: High operational cost 0.03 3 0.09 1 0.03 3 0.09W10: Management instability (3 CEO s in 6 years) 0.02 2 0.04 2 0.04 2 0.04W11: No growth in sale (2004-2006) 0.03 3 0.09 3 0.09 1 0.03

1 5.79 5.23 5.11

Product Development Market Penetration AcquisitionStrategic Alternatives

21 | P a g e

Recommendation: Revlon should retract from international market. The company should

reorganize its international operations by appointing distributor setup and windup its presence in the higher costing markets. This option should be opted for the sub–continental and Latin American markets. However, the company should maintain its presence in the European market. This can be done on joint venture basis.

Regions that have impeccable fashion following must be tackled by joint venture. This joint venture must be formed with local cosmetic manufacturers in those regions. Whereas the regions that have low fashion following should be managed by appointing distributors in those areas.

Conclusion:Revlon needs to evaluate their present approach to the market place seriously. Although their industry is growing, they are unable to compete effectively and they need to determine why their current approach is ineffective and how the company can best change to improve competitiveness.Revlon needs strategies like Market development, Market penetration, Product development, Horizontal integration, Divestiture and Liquidation.

22 | P a g e