Cosmetics maker Revlon Inc of the United States has filed for bankruptcy, falling victim to global supply chain disruptions, inflation and stiff competition from other leading brands, which had gone aggressively in online selling and brand improvements.
The supply chain disruptions pushed up raw material costs and prompted vendors to demand upfront payments.
Known for its nail polishes and lipsticks, Revlon in recent years has lost space and sales to startups backed by celebrities such as Kylie Jenner’s Kylie Cosmetics and Rihanna’s Fenty Beauty.
In its bankruptcy filing, Revlon said supply chain disruptions in the spring prompted intense competition for ingredients used to make its products. Also, vendors that traditionally offered up to 75 days for payment began demanding cash in advance of new orders, while labor shortages and inflation added to its troubles, it said.
“For example, one tube of Revlon lipstick requires 35 to 40 raw materials and component parts, each of which is critical to bringing the product to market,” Robert Caruso, Revlon’s chief restructuring officer wrote in a court filing.
“With shortages of necessary ingredients across the company’s portfolio, competition for any available materials is steep.”
Covid-19, Ukraine war and Shanghai lockdowns
The COVID-19 pandemic has lengthened ship delivery times since 2020, pushing up freight costs, while the Russia-Ukraine conflict and lockdowns in Shanghai exacerbated the supply chain disruptions this year.
Shares in Revlon fell as much as 44 percent on Thursday on the bankruptcy filing before closing 13 percent. The shares had halved in market value between last Thursday and close of trading on Wednesday. Media reports of a potential bankruptcy filing emerged on Friday.
Debts mounted
Revlon, which was formed in 1932 by brothers Charles and Joseph Revson and Charles Lachman, started off selling nail enamel. It was sold in 1985 to MacAndrews & Forbes – which remains the controlling shareholder and is owned by Ron Perelman – and went public 11 years later.
Revlon bought Elizabeth Arden in an $870 million skincare bet in 2016 to fend off competition. It houses brands including Britney Spears Fragrances and Christina Aguilera Fragrances.
But the company’s sales lagged over the years and in 2021 fell 22 percent from its 2017 levels. In contrast, competitors like CoverGirl, owned by Coty Inc, have gained market share by investing heavily to improve supplies.
The company also made headlines two years ago when Citigroup Inc accidentally sent nearly $900 million of its own money to Revlon’s lenders.
Revlon asked its bankruptcy judge to confirm that the Chapter 11 filing would not stop Citibank’s ongoing appeal over the $504 million it is still trying to recover from Revlon lenders. A quick prompt resolution of the dispute would help its bankruptcy case move forward, it said in court papers.
The mistaken payment is part of a complex battle between Revlon’s pre-bankruptcy lenders, who have jockeyed for control during Revlon’s attempts to defer debt payments.
An attorney representing junior creditors, Clark Whitmore, said in court that the senior lenders’ “feeding frenzy” would destroy value for stakeholders that are lower on the food chain.
Revlon plans to fund its bankruptcy case with $575 million in debtor-in-possession financing from its existing lender base. It listed more than $3.54 billion in liabilities in its court filing late on Wednesday.
The company said none of its international units, except Canada and the United Kingdom, are part of the Chapter 11 bankruptcy proceedings.
Mittleman Brothers Investment Management, which holds about 3 percent of the company’s stock, expressed hope equity holders would manage a decent payout despite the bankruptcy.
That could happen if Revlon manages higher sales that allow it to overcome supply chain issues, Chris Mittleman said in an email to Reuters.
In a court filing late Wednesday, the company- initiated Chapter 11 proceedings to manage its debt, which it said stood between $1 billion and $10 billion.
Revlon, known for its signature nail polish and lipstick, reported long-term liabilities of $3.3 billion in the first quarter.
“Today’s filing will allow Revlon to offer our consumers the iconic products we have delivered for decades, while providing a clearer path for our future growth,” CEO Debra Perelman said in a statement.
In the United States, Chapter 11, known as reorganization bankruptcy, allows firms to restructure themselves while being protected from creditors and continuing to operate.
The company said it expects to receive $575 million in financing from its lenders if its bankruptcy is approved in court.
Owned by billionaire investor Ronald Perelman and run by his daughter, Debra Perelman, Revlon reported a net loss of $67 million from January to March.
The company, which lists Elizabeth Arden, Almay, and Britney Spears Fragrances among its brands and has operations in more than 150 countries, has suffered from the global supply chain crisis and high inflation.
Revlon also has also faced increasingly tough competition, which has hurt revenue in recent years.
The company was embroiled in controversy in August 2020 when Citibank revealed that it had accidentally transferred $900 million dollars to several of Revlon’s creditors.
The bank then filed a complaint against an investment fund that refused to pay part of the sum, but the complaint was dismissed in court.