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Revlon Files for Chapter 11 Bankruptcy Protection

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Revlon has filed for bankruptcy protection as the cosmetics giant tries to get out of its heavy debt load amid soaring prices and supply chain disruptions.

The company said in a press release that it expects $575 million in funding if the plan wins court approval. The additional funds will support the day-to-day operations of the business. As part of the Chapter 11 filing, the company is able to continue operating while reorganizing its outstanding debt.

The 90-year-old multinational is known for a range of cosmetics and skincare brands, including drugstore-favorite Almay and premium brand Elizabeth Arden, which Revlon acquired in 2016 after selling more than $2 billion in loans and bonds. It is controlled by billionaire Ronald Perelman’s MacAndrews & Forbes.

Prior to the coronavirus crisis, Revlon faced growing competition from celebrity-backed start-ups such as Kylie Jenner’s Kylie Cosmetics and Rihanna’s Fenty Beauty, which were siphoning off many of its younger consumers through its social media marketing.

But the pandemic has only exacerbated these problems as sales of lipstick – Revlon’s signature product – have dwindled when people have been masking up. Global 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 sufficient support from bondholders.

Debra Perelman, chief executive of Revlon and daughter of Ronald Perelman, said 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 hope to be able to simplify our capital structure and significantly reduce our debt, allowing us to unlock the full potential of our globally recognized brands,” said Perelman.

Revlon estimated the liabilities at between $1 billion and $10 billion in a court filing. In its latest earnings report, the company reported long-term debt of $3.3 billion.

Revlon said it was unable to maintain a steady supply of raw materials, putting production at risk, according to the court filing. Nearly a third of customer demand cannot be met in a timely manner due to lack of raw materials, he added.

While Perelman said on the March earnings call that supply chain headwinds were “temporary” and that Revlon had found additional suppliers for key materials, the war in Ukraine and the covid lockdown in China presented new challenges to the global supply chain. Shipments from China to the United States doubled in time and quadrupled in cost compared to 2019, the company said.

Experts said Revlon could take advantage of Chapter 11 provisions to revamp its portfolio of brands, where older ones have shown unsatisfactory performance and lost customers. “If executed effectively, Revlon could emerge from bankruptcy with a cleaner balance sheet and better operating profile, improving the longer-term business outlook,” said David Silverman, senior director of retail at Fitch Ratings, to RetailDive in comments via email.

Corporate bankruptcy filings hit record lows in early 2022, according to data from S&P Market Intelligence, which excludes smaller corporate filings. At the end of May, 143 bankruptcies had been filed this year, compared to 203 in 2021 and 263 in 2020 over the same period. Of the 143 bankruptcies, only three are retail filings.

However, Revlon’s filing – the first from a major company to reach out to consumers in years – could signal a slowdown in the consumer discretionary sector, which largely encompasses companies selling non-essential and cycle-sensitive products. economic.

In May, inflation reached 8.6% compared to last year, which led to financial pressure felt by many households. According to data from the Census Bureau, retail sales fell 0.3% from the previous month in May as consumers turned to cheaper alternatives amid rising prices.