Revolution Beauty — Returning to profitability

Research: Consumer

Revolution Beauty — Returning to profitability

Revolution Beauty’s (REVB’s) FY24 results demonstrated the new management team’s progress on its updated strategy. Although revenue growth was relatively muted at c 2%, the streamlining of the brand and product portfolio and improvement in inventory turnover led to a swing back to profitability. Due to REVB’s refocused product portfolio and stock clearance, management expects FY25 Masterbrand run-rate revenue to be c £167m, although with a return to revenue growth in H225. Adjusted EBITDA is expected to be ‘at least in line’ with FY24 but H225 weighted.

Written by

Milo Bussell

Analyst, Consumer and TMT

Consumer

Revolution Beauty

Returning to profitability

Personal care products

QuickView

10 July 2024

Price

23p

Market cap

£74m

Share price graph

Share details

Code

REVB

Listing

AIM

Shares in issue

318.9m

Business description

Revolution Beauty is a UK-based beauty and personal care products company, primarily targeted at Generation Z consumers. By channel, store sales accounted for 78% of FY24 revenue with digital at 22%. Revolution Beauty operates across a number of geographies, including the UK (33%), the US (23%) and the rest of the world (44%).

Bull

Revolution Beauty has a strong brand with broad geographic exposure in growth markets.

New management team has a focused strategy to become a top five mass beauty brand by 2030.

The core product offering to the Gen Z consumer provides a clear focus for the business.

Bear

The shares were suspended between 1 September 2022 and 28 June 2023 after the company failed to publish accounts within the required timeframe.

The beauty market is highly competitive with large market incumbents.

Concentrated shareholder register and relatively small free float of 35%.

Analysts

Milo Bussell

+44 (0)20 3077 57 00

Russell Pointon

+44 (0)20 3077 57 00

Revolution Beauty’s (REVB’s) FY24 results demonstrated the new management team’s progress on its updated strategy. Although revenue growth was relatively muted at c 2%, the streamlining of the brand and product portfolio and improvement in inventory turnover led to a swing back to profitability. Due to REVB’s refocused product portfolio and stock clearance, management expects FY25 Masterbrand run-rate revenue to be c £167m, although with a return to revenue growth in H225. Adjusted EBITDA is expected to be ‘at least in line’ with FY24 but H225 weighted.

Return to profitability

REVB’s FY24 results reflected the benefits of the revised strategy, as it returned to profitability. Revenue grew 1.8% to £191.3m (FY23: £187.8m), as declines in the UK and US were offset by a 23% increase from the rest of the world, driven by a strong performance in the Middle East and Nordic regions. Importantly, the improvement in inventory turnover, lower freight costs and exiting lower-margin products and brands resulted in a 5.8pp boost to gross margin to 46.2% (FY23: 40.4%). Further down the P&L, the group returned to profitability as the benefits from the three-year £10m cost saving programme begin to materialise. Adjusted EBITDA was £12.6m (FY23: £7.5m loss), adjusted EBIT was £7.4m (FY23: £23.4m loss), while adjusted PBT was £4.3m (FY23: £26.7m loss). REVB finished FY24 with net debt (ex-lease liabilities) of £23.1m (FY23: £20.7m), despite exceptional cash costs in the year of £4.7m, mainly relating to legal fees.

Reigniting the Revolution strategy progressing

At REVB’s capital markets day in February, management set out its ambitions to become a top five mass beauty brand by 2030 through its Reigniting the Revolution strategy, targeting revenues of £1bn in retail sales. The new management team has repositioned the business by streamlining its brand and product portfolio, focusing on the Revolution Masterbrand and core categories. The expansion of its distribution network has helped the company enter new geographies, while a more focused purchasing strategy is starting to deliver operational efficiencies and improvements in service levels to its retail partners.

Valuation: Discount to peers

REVB has seen a 28% fall in its share price in the year to date compared to the peer average rise of 5%. The company trades on EV/EBITDA multiples of 8.0x for FY25e and 7.1x for FY26e, substantial discounts of 37% across both years to its global beauty peers. As it continues to deliver against its guidance and strategic targets, we believe this gap could narrow.

Consensus estimates

Year
end

Revenue
(£m)

Adjusted EBITDA (£m)

Adjusted PBT (£m)

EPS
(p)

EV/adjusted EBITDA (x)

P/E
(x)

02/23

187.8

(7.5)

(26.7)

(10.9)

N/A

N/A

02/24

191.3

12.6

4.3

3.4

8.0

6.8

02/25e

179.3

12.7

4.2

1.1

8.0

21.6

02/26e

197.4

14.2

5.4

1.4

7.1

22.4

Source: LSEG (priced at 26 June 2024)

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General disclaimer and copyright

This report has been prepared and issued by Edison. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

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United Kingdom

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