NEW YORK — After a four-year effort to turn around Revlon, Jack Stahl has left the beauty firm’s top post following some calamitous setbacks. Stahl has been replaced by chief financial officer David Kennedy.
Space losses in a number of key retailers this summer led many to wonder if Revlon’s primary owner since 1985, Ronald Perelman, would make changes to top management. Kennedy, 59, is the sixth ceo under Perelman’s watch, following the footsteps of Stahl, Jeff Nugent, George Fellows, Jerry Levin and Sol Levine.
But the change seemed abrupt to retailers and Wall Street, as well as Stahl’s beauty industry peers, who honored the ceo last week at the Dream Ball, an annual event that benefits the American Cancer Society.
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Revlon’s stock price remained relatively unchanged. Shares closed at $1.41, down 1.4 percent, on the New York Stock Exchange Monday.
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Kennedy could not be reached for comment.
Revlon has stated — and executives inside the company have reiterated — that Stahl left of his own volition. But the view on Wall Street is that he was forced to step down in the midst of a tough year for the firm. One industry source said that Stahl’s right hand, Stephanie Klein Peponis, is expected to leave as executive vice president and chief marketing officer by October, and that a round of layoffs is slated to take place in the next several weeks. Revlon would not comment on either statement.
Stahl joined Revlon as chief executive officer in 2002 from Coca-Cola, where he was president and chief operating officer. He has worked with Kennedy for two decades and recruited him from the beverage company four years ago to run Revlon’s international business. Kennedy took on the role of executive vice president, cfo and treasurer in January, swapping posts with Thomas McGuire, who is now executive vice president and president of Revlon International.
On Monday, Kennedy officially took over the reins of director, president and ceo of Revlon, but Stahl has agreed to stay on as an adviser for a 30-day transition period.
“David has a clear vision at Revlon International and he achieved significant success there, generating top-line growth and restoring meaningful profitability to the business,” said a Revlon spokesman. He added that Revlon’s fundamental strategy of leveraging its brands will remain consistent but noted, “We expect David will make his own mark as he did at Revlon International.”
From 2001 to 2002 — prior to Kennedy’s arrival — Revlon’s international sales declined 8 percent each year and the business generated operating losses. In 2003, the year after Kennedy joined Revlon, the company’s international sales were up double-digits and operating profitability was restored.
Upon joining Revlon in 2002, Stahl outlined a five-year turnaround plan for the struggling beauty firm that hinged on polishing core franchises, including Age Defying and ColorStay, the relaunch of the Almay brand and the introduction of a new line of cosmetics for mature women called Vital Radiance.
William Chappell, an analyst with SunTrust Robinson Humphrey Capital Markets, also credited Stahl with mending relationships with retailers that had turned sour after a series of shipment troubles and spotty in-store execution. Chappell said Revlon’s appointment of Kennedy, part of Stahl’s management team, might be an expression of confidence by the company.
Several industry sources said that while Stahl had successes at Revlon, the Achilles heel of his tenure was Vital Radiance.
Since its launch in January, Vital Radiance has failed to gain traction in the mass market, and has hindered Revlon’s turnaround momentum. Company sales ticked up less than 1 percent in the most recent quarter to $321.1 million from $318.3 million, but were pulled down by a $17 million returns-and-allowances provision for Vital Radiance as big-box retailers cut the new line from a number of their doors. Revlon would not comment on which retailers scaled back space for the line, but industry sources said the list includes Wal-Mart, Target and CVS.
“Revlon had been struggling for years. It was losing money for 22 or 23 straight quarters, but I think they were making some progress,” said a cosmetics manufacturer executive. “Then the Vital Radiance debacle just shattered them. In hindsight I think there were a series of marketing errors. The leap of faith on the price point, taking a line and doubling the average retail price, if not tripling it, was significant.”
Several beauty buyers said that Revlon’s plans to fix Vital Radiance include reducing prices — which are on par with Clinique, a department store brand — by nearly 13 percent and amending the brand’s name to Vital Radiance by Revlon. One buyer noted that a recent 50-percent off promotion helped bolster sales of the product.
“I think using the Revlon name will help with recognition. We didn’t fully get Vital Radiance set up until July and we needed more than 30 to 60 days to judge it,” said an executive from a midsized Midwestern drug chain. “We’ve decided to hang on and see what 2007 brings.”
Another setback was the abrupt postponement in June of a daring and bold plan to reenter the department store fragrance market with a women’s scent called Flair.
“Was this bound to happen? I think probably yes,” said Credit Suisse analyst Filippe Goossens referring to the change in leadership. He noted that ceo’s are often given a four- to five-year window to implement a turnaround. “By year four, you clearly need to see improvement.
“Revlon still has a formidable presence in the U.S. market, but one of its biggest challenges is its balance sheet,” he continued, noting that the company has not had a year of positive free cash flow since 1996, the year it went public. “Its competitors have significantly deeper pockets to fund marketing and research and development,” said Goossens. “One of the ways this company could flourish again is to bring in a strategic investor seeking access to the U.S. mass market and new channels of distribution.”
Several retailers and analysts raised concerns about filling Revlon’s top post with another Coca-Cola executive. “Just because you are successful in another consumer products industry does not make you successful at the helm of a beauty company,” said one research analyst.
“My thinking is if they are appointing a cfo to replace him there is some financial consideration that will happen at Revlon,” said an executive at a competing beauty firm. “It is a debt-ridden company so you have to get rid of some of the parts. It could be that they sell Almay, sell the HBA/Mitchum business, and then figure out how to pay off the debt. Otherwise, you need a swift marketing-turnaround-ceo type of person.”
— With contributions from Faye Brookman andAndrea Nagel