I.

Background of the Study

Revlon is a world leader in cosmetics, skin care, fragrance and personal care and
is a leading mass-market cosmetics brand.

Revlon recently consolidated some sales and marketing functions to reduce

operational costs. The company also eliminated some senior positions an reduced
staffing about 8 percent of their U.S. workforce to save approximately $33 million
a year. Net sales for 2006 decreased by $1 million to $1331 billion compared to
1,332 billion in 2005. Net losses in 2006 were $251 million following a loss of
$84 million in 2005. The company has posted losses for eight consecutive years
and has struggled with debt since Ron Perelman purchased a majority stake in the
company in 1985. Revlon is a company in trouble.

II. Statement of the Problem

The continued net losses of Revlon.

II. Objective

To increase the net income to 15% at the end of the year 2011.

IV. Industry Analysis

Nature of Industry

Personality boosting products

A. External Assessment

Political Environment
Socio-cultural Environment

Technological Environment
Ecological Environment

Legal Environment
Demographic Environment
 B. Internal Assessment

Five Forces Model

Threats
Counterfeit commodities
Regulations are increasing due to the voicing of
different groups about harmful chemical ingredients
in cosmetic products
Opportunities
Expansion to global markets, worldwide.
New markets are emerging in various countries.
Weakness
Weak Liquidity position
Profit Oriented
Strength
Strong brand reputation
Strong distribution network

Threat of New Entrants:

LOW

Estee Lauder has made its

strong position.

Bargaining Power of Rivalry among Existing Bargaining Power of

Supplier: Competitors: Buyers:

The volume of goods HIGH HIGH

required from the Buyers can easily switch
suppliers around the Estee Lauder needs to have to other big brands.
world is huge. constant innovation of its
products so as to stay ahead of
 Threat of Substitute
Products:

LOW

Estee Lauder customers have

built a customer loyalty.

V. Financial Statement Analysis

Gross Profit Margin

Operating Profit
Return on Asset
Inventory Turnover
Long term Debt

VI. Generic Strategy

Revlon uses Cost leadership Strategy as its generic strategy. Revlon, Inc has a 75-year of
providing high quality products at affordable prices to women.

VII. Alternative Courses of Action

Alternative 1: Retrenchment

Revlon will regroup costs and make asset reduction to reverse the declining sales and profit.
Selling off assets, reduce the number of employees and pruning product lines to raise the needed
cash.
 Projected Income Statement

For the Year Ended December 31

2006 2007 2008 2009 2010 2011

$1,331 $1,358 $1,520. $1,703. $1,907. $2,136.
Net Sales .40 .03 99 51 93 88
357.9025 322.1122
Cost of Sales 545.5 490.95 441.855 397.6695 5 95
867.07 1079.13 1305.84 1550.02 1814.77
Gross Profit 785.9 8 636 082 901 105
Selling and Administrative 794.29 754.5802 716.8512 681.0086 646.9582
expenses 836.1 5 5 38 76 42
324.556 588.989 869.020 1167.81
Operating (loss) Income -50.2 72.783 11 586 336 281
106.8786
other Expenses,net 181 162.9 146.61 131.949 118.7541 9
- 177.946 457.040 750.266 1060.93
Loss before Income Taxes -231.2 90.117 11 586 236 412
23.26826 24.43167 25.65325
Provision For Income Taxes 20.1 21.105 22.16025 25 56 94
$111.2 $1,035.
Net( Loss) Income -251.3 2 $155.79 $433.77 $725.83 28

Alternative 2: Divestiture

Rid organization of business that are not profitable, that require too much capital.

Projected Income Statement

For the Year Ended December 31

2007 2008 2009 2010 2011

$1,344. $1,371. $1,536.2 $1,720.5 $1,927.0
Net Sales 71 61 0 5 1
518.22 466.402 419.7622 377.7860 340.0074
Cost of Sales 5 5 5 25 23
826.48 905.205 1116.439 1342.759 1587.003
Gross Profit 9 78 02 4 46
Selling and Administrative 769.21 730.751 694.2138 659.5031 626.5279
expenses 2 4 3 39 82
174.454 422.2251 683.2562 960.4754
Operating (loss) Income 57.277 38 94 63 74
 125.3515 112.8163
other Expenses,net 171.95 154.755 139.2795 5 95
-
114.67 19.6993 282.9456 557.9047 847.6590
Loss before Income Taxes 3 8 94 13 79
21.3160 22.38185 23.50094 24.67599
Provision For Income Taxes 20.301 5 25 51 24
$134.9
Net( Loss) Income 7 $1.62 $260.56 $534.40 $822.98

Comparative Statement of Two Alternative Courses of Action:

ALTERNATIVE 1 ALTERNATIVE 2
SALES $2,136.88 $1927.01
NET INCOME $1035.88 $822.98
PROFIT MARGIN 48% 43%

VIII. Conclusion and Recommendation

Revlon Company is experiencing consecutive net loss and large debt. Though the company is in
trouble they strive to remain in the market and continue to operate. With proper strategy it may
achieve its goals. Therefore we recommend them to apply the alternative 1 for it results to 48%
of net profit margin.