Revlon Shares are Up Over 50% As Retail Traders Look for Quick Profit

Ticker Symbol: REV

Revlon shares are up 50% in the morning trading session after jumping 91% on Friday and a further 62% on Tuesday. The shares in the beleaguered company were last trading at $9.42 per share, or roughly 700% above the low share price of $1.17 that hit on June 13^th, after the company announced that it was filing for bankruptcy. The company’s market value at current stock price levels is roughly $500 million.

The giant makeup and cosmetics company filed for Chapter 11 bankruptcy protection on June 15^th. Typically, the share price of companies that file Chapter 11 are delisted and trade down to $0 once court proceedings begin. Chapter 11 bankruptcy is considered a reorganization of business filing, which is different from Chapter 7 bankruptcy. In a Chapter 11, the company plans to work with its debtor to reemerge in a healthier state, while in a Chapter 7, the company plans to liquidate all its assets to pay debtors and cease all business operations.

As of March 31^st, its’ last quarterly filing, Revlon had roughly $3.4 billion in debt. The company produced revenue of just $2.1 billion in the entirety of fiscal year 2021, and generated earnings before interest, taxes, depreciation, and amortization of $300 million. However, the company recorded a net loss of $165 million. Revlon has not reported a profitable full fiscal year since 2016, and it has been hemorrhaging cash for the last 5 years.

New entrants into the cosmetics industry, such as Elf Cosmetics, Fenty and Blue Mercury, along with shifting demographics and customer preferences, meant that Revlon got left behind and could not compete. The company’s top line peaked in 2017 at $2.7 billion and has since slid even more with the pandemic. Its’ slide in market share was worsened by weak management and poor leadership at the board level.

Revlon’s stock rise mirrors those seen from previous troubled companies that were boosted, and in some cases, saved, by retail traders. Management at companies such as Hertz and AMC Entertainment have said that a rise in stock price is thanks to a large part of retail traders allowing them to list more secondary shares to generate cash and stave off more severe trouble.

In a company’s capital structure, common stockholders have the weakest claims on assets relative to lenders, bondholders, and preferred shareholders. Revlon did receive a potential lifeline on Friday when a bankruptcy judge allowed the company to access $375 million of new financing on an interim basis to help stabilize the cash-strapped company. The company had just $6 million cash on hand at the time of the hearing.

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