Revlon Files for Bankruptcy Protection

Revlon, a 90-year-old cosmetics company, filed for bankruptcy protection this week, with about $3.7 billion in debt, or about $1.4 billion more than it has in assets, according to its bankruptcy petition. The company is controlled by billionaire Ron Perelman’s MacAndrews & Forbes, which holds an 84.8% equity stake.

The economy appears to be going bust as inflation skyrockets and the stock market sinks, which could lead to more big bankruptcy cases.

Supply Chain Woes and Debt

Supply chain disruptions were a big factor in Revlon’s bankruptcy, with the cost of managing these disruptions contributing to a liquidity shortfall of more than $300 million.

Tighter supplies, resulting from lockdowns and transportation delays, meant that Revlon was forced to pay more for its makeup ingredients, impacting its bottom line.

The company’s reliance on a limited number of global suppliers for its ingredients exacerbated the issue, making it difficult for Revlon to absorb the increased costs. As a result, the company’s profit margins were squeezed, further contributing to its financial struggles.

In addition to the direct financial impact, supply chain disruptions also affected Revlon’s ability to maintain a consistent product offering, potentially damaging its relationships with customers and retailers.

Recent Financial Performance

Despite its struggles, Revlon’s sales rebounded strongly in the first quarter of this year, rising 7.8% to $479.6 million, with its net loss narrowing substantially from a loss of $96 million in the first quarter a year ago.

The company’s president and CEO Debra Perelman said that Revlon experienced its “best Q1 Adjusted EBITDA in six years” when the financial results were released in May.

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In contrast, Glossier, a direct-to-consumer makeup startup, has had a bumpy ride over the past year, laying off 80 employees in January after facing complaints about racism and a toxic work culture.

Furthermore, an analysis of job postings for both companies reveals that Glossier’s hiring activity has been significantly slower than Revlon’s over the past few months, according to data from Thinknum.

A Loan Snafu with Citibank

A 2020 incident in which Citibank accidentally paid Revlon creditors almost $900 million due to a data entry error may reemerge in the bankruptcy case, potentially reducing Revlon’s debts.

A federal district court judge ultimately allowed some of the creditors to keep $504 million of the accidental overpayment, and the ruling has been appealed, which could impact Revlon’s bankruptcy proceedings.

As the case unfolds, it’s likely that the court will consider the impact of this loan snafu on Revlon’s finances, and how it will affect the company’s ability to pay its debts.

Meanwhile, the Securities and Exchange Commission may also be watching the case.

A 2020 incident in which Citibank accidentally paid Revlon creditors almost $900 million due to a data entry error may reemerge in the bankruptcy case.