DAILY EDITION 20 JUNE 2016
Glittering In Vegas Iris Inks a Deal
Jewelry trade shows highlight new products and prices in Las Vegas. PAGE 14
Macy’s teams with Iris Apfel for a collection for INC.
Remembering Gene Cavallero Jr. and The Colony.
Fashion. Beauty. Business. BEAUTY
Revlon-Arden: Does Deal Solve Their Problems? ● While financial sources think
the deal bodes well for both businesses, retailers are not so sure. BY ALLISON COLLINS WITH CONTRIBUTIONS FROM FAYE BROOKMAN
Milan 2017 FASHION
Photograph by Davide Maestri
Take A Hike Climb every mountain. That was Miuccia Prada’s message with her spring men’s wear and women’s resort collections, pivoting from fall’s chic sailors to psychedelic trekkers. The Italian designer plunged deeply into activewear, lighting up billowing outerwear with vivid colors and rigging her models with giant backpacks dangling luxury accessories. For more on the busy weekend of Italian men’s collections, see pages 4 to 11.
Revlon Inc. could be the answer to many of Elizabeth Arden’s problems — and vice versa. “Although neither company has been really thriving, they’re not dead,” said Andrea Weiss, founding partner at The O Alliance. “This isn’t like they combined two really bad companies hoping to get a better outcome. There are a lot of assets in both portfolios, and if you could really get those synergies that are being projected…you could end up with a significantly more productive entity.” Revlon agreed to pay $870 million — $14 per Arden share — to take the beauty firm under its slightly larger wing on Thursday evening. The deal is expected to produce $140 million in cost synergies and comes with $2.6 billion in financing. On Friday, Moody’s Investors Service placed Arden’s ratings on review for an upgrade — its debt would be paid off through the loan — and Revlon’s ratings on review for a downgrade because of the deal. Moody’s analyst Brian CONTINUED ON PG. 16
Thom Browne Plots Accessories Expansion ● Newly instated ceo Rodrigo
Bazan says women’s accessories sales could double in the next few years. BY MISTY WHITE SIDELL
Thom Browne is ramping up his brand’s women’s wear accessories business. The preppy, tailored brand is introducing new handbag and shoe styles to its assortment each season as it looks to double its accessories sales in the next two to three years. New styles have been introduced for fall 2016 and resort 2017. True to Browne form, the designer has transposed Brooks Brothers-type embroidered pant motifs into eccentric arm candy. A coterie of Italian-made animal clutches with articulated joints, priced from $300 to $5,700, take the shape of rubber ducks, crabs, whales and elephants. They join the label’s standby designs, CONTINUED ON PG. 15
20 JUNE 2016
Revlon-Arden: Does Deal Solve Their Problems?
CONTINUED FROM PAGE 1
Weddington said while the firm is still examining the transaction, leverage will likely surpass seven times. Revlon chief financial officer Juan Figuereo said on a conference call Thursday that there “will be cost upfront for capturing those synergies” and that Revlon is “looking at 4.2 turns of leverage assuming full realization of the synergies of the $140 million. The company will be very cash-generative once combined. And so, the ability to de-lever is actually very strong.” “The success very much hinges on their ability to get those cost savings,” Weddington said. The deal is expected to go through, according to a research note by B. Riley & Co. analyst Linda Bolton Weiser. “If [Arden] were not still a ‘fixer-upper,’ just Elizabeth Arden alone [40 percent of sales], one of the last independent iconic brands in the beauty industry, would have fetched…$800 [million] to $1.2 [billion],” she wrote. “It makes sense,” she said, analyzing the worth of the deal from an Elizabeth Arden standpoint. “It’s a wonderful outcome for Arden because they have been struggling,” said Weiss. “The celebrity endorsement route that they have taken seems to have run its course.” Revlon and Arden have struggled as midsize companies in a rapidly consolidating beauty climate dominated by much larger players. Revlon reported slight improvement recently, with net income of $11 million from a $900,000 loss year-over-year for the latest quarter, while Arden reported a $27.7 million net loss for the quarter — reduced from the $34 million loss in the prior-year period.
The merger will create a beauty business with roughly $3 billion in annual sales — bringing it up into the top 20 beauty companies globally. It also creates a platform that has a hand in all major categories: mass, prestige, professional, color cosmetics, skin care and fragrance. And it fills in the gaps globally — Arden is strong in China, where Revlon is not, and Revlon is stronger in Latin America, where Arden could use more of a presence, sources said. Arden chairman and chief executive officer E. Scott Beattie singled out Latin America as a key market for fragrances, while Revlon ceo Fabian Garcia echoed with interest in Brazil — where Revlon does not have a presence. “It’s a very large bucket we are interested in,” Garcia told WWD. “As we look at the synergies that we have, there are countries where we are both strong: the U.S., the U.K. and South Africa. Then you have a bucket of countries where Elizabeth Arden is strong and we are not as strong: South Korea and China. Then you have another bucket of countries where we are strong and they are not as strong: Japan,” Garcia said. To some industry sources, the transaction is reminiscent of Coty Inc.’s expansion.
“Although much smaller in scale than companies like L’Oréal and Coty, it seems this combined entity over time may try to play across all channels and product categories,” said Andrew Charbin, vice president at The Sage Group. “This deal will help increase the prestige component of Revlon’s business and give it some entry into skin care, an area it was under-indexed in.” “This acquisition is really putting the business in the department store sector,” said Jane Hali, ceo of investment research firm Jane Hali & Associates. “Revlon sells at Wal-Mart, Target, grocery stores and drugstores. Color cosmetics are selling very well and that helps both companies, but actually, Elizabeth Arden is bringing skincare to the mix.” Still, there are doubters about the deal. “I understand the mosaic (or patchwork) strategy — combine the strengths of each company to build a stronger overall business. In this case, it seems Revlon sees the geographic opportunity,” said Wendy Liebmann, ceo of WSL Strategic Retail. “But I’m not sure that’s enough. There’s so little other business synergy. Arden is a fragrance and skincare house. Revlon a color cosmetics and hair-color business. Different price
points and distribution. So not a easy opportunity — if there’s one at all.” Retailers also don’t look upon the deal as favorably as the financial community. Initial mass-market retailer reaction to the purchase struck a similar chord to Coty’s purchase of the P&G brands last year — that they wish the acquiring company was in better shape before adding more challenges. “I guess these new guys at Revlon are aggressive in their approach,” said one retailer, who requested anonymity. “I wish they would run Revlon better first.” Although there has been a glimpse of uptick for some Revlon brands, retailers said Almay is withering. Another retailer likened the acquisition to the merger of Kmart and Sears, which has never clicked on all cylinders. “It feels to me that they want diversity similarly as Coty has diversity of trade channels and L’Oréal has diversity of trade channels. As mass potentially flattens or declines, and specialty grows, they now have brands that fit into specialty. As dollar outlets grow and department stores decline, they have brands that fit. The money cow for Elizabeth Arden is the secondary fragrance business and their owned brands and even those are declining,” said one chain executive. Revlon has chalked up gains in a few facial categories, according to IRI data for the 52-week period ended March 20, such as an increase of 22 percent for PhotoReady Powder and ColorStay Powder which notched a 7.8 percent increase. Chain executives said they were caught off guard as they thought Revlon itself was looking for a suitor, at least for its struggling Almay. “Perhaps this is to fatten it up to be more attractive,” one wondered. Shareholders seem to be on board for the merger, sending stock prices for both companies upward on Friday. Arden’s stock closed at $13.88, up more than 49 percent, and Revlon’s shares closed up about 6.6 percent, at $33.25.
Ceo Carlalberto Corneliani will hold a press conference Tuesday. BY LUISA ZARGANI
MILAN — Another heritage Italian men’s wear company is taking on an investor. According to market sources in Milan, Investcorp is buying a stake in Corneliani. Although sitting out Milan Men’s Fashion Week this season, Carlalberto Corneliani, president and chief executive officer of the family-owned men’s wear company, will hold a press conference here Tuesday, the last day of the shows. The event fuels growing speculation that the company may be partnering with Investcorp to further develop its business. The Bahrain-based fund purchased Danish jewelry brand Georg Jensen at the end of 2012 and is the former owner of Gucci, Tiffany and Saks Fifth Avenue.
Corneliani declined to comment on the speculation, but, according to sources in Milan, the deal is done. One source said Investcorp is eyeing “the industrial assets of the company and its expertise in production.” One analyst pegged Corneliani’s business at around 150 million euros, or $170 million at current exchange rates. If Corneliani does take Investcorp on as an investor, it would be the latest heritage Italian men’s wear brand to do so. Brioni is now owned by Kering and has undergone recent changes in its creative director, while Pal Zileri was acquired by Qatari-based Mayhoola for Investments in 2014 and has been making an effort to grow its profile in the U.S. Several members of the third generation of the Corneliani family are part of the business. The brand is designed by Sergio Corneliani; Corrado is in charge of direction production and logistics; Maurizio is director of finance, legal affairs and strategic marketing and Cristiano is its commercial director. Alfredo Corneliani started the company in
the Thirties in the northern town of Mantua as an artisanal production of trenches and outerwear. His sons Claudio and Carlalberto established the Corneliani company in 1958. Corneliani opened its first store in Bahrein in 2014. It has an international business with other stores in the Middle East, from Dubai to Doha, and banners in countries ranging from China to Korea. Last year it opened shops in Paris and Moscow, and in March the company reopened its boutique in Florence with a new concept. Corneliani produced 200 units of a limited-edition version of the first IDentity Jacket in 2015 to mark that piece’s 10th anniversary. This is a staple for the company, equipped with a detachable chest piece that makes it suitable for different times of the day. The IDentity Coat, the Paddock Jacket, the ID Club Blazer and the O-Jacket are also strong items for the brand. Hand-sewn made to measure suits involve more than 150 steps for a jacket and can be delivered in three weeks.
Corneliani Men’s RTW Fall 2016
Corneliani photograph by Giovanni Giannoni
Investcorp Seen Taking Stake in Corneliani