Revolution Beauty takes £11.3m hit as discontinued stock sells off

Revolution Beauty shares fell sharply on Wednesday after the cosmetics company flagged an £11.3 million hit to profits related to the liquidation of discontinued shares.

The group is on the mend after a 2022 investigation found serious accounting irregularities, leading to costly legal battles, a board coup and a near collapse in its valuation.

Revolution Beauty told shareholders that a simplification and cost-cutting plan had led to a 20 per cent year-on-year decline in revenue to £72m for the six months to August 31.

The decline also reflects “significant stock liquidation activity”, with the group focused on liquidating slow-moving discontinued inventory from previous years in an effort to generate cash.

Revolution Beauty said: “As a result, the Group has determined that it is necessary to recognize a one-off, non-cash equity provision of £11.3 million in the first half to reflect the net realizable value of the remaining old inventory.

“This will allow management to realize value and generate cash for future operations.”

Revolution Beauty Actions fell more than 20 per cent at the open, before recovering to trade around 10 per cent lower at 16.1p by mid-morning.

They are more than 90 per cent off their 2021 IPO price of 170p.

But Revolution Beauty highlighted 6 per cent growth in its core range, accelerating to 16 per cent in the second quarter compared to a year earlier.

Margins were also boosted by cost-cutting efforts, with operating costs excluding administrative and marketing costs falling 31 and 25 percent, respectively, year-over-year.

Marketing costs increased 8 percent from a year earlier, reflecting “investments in brand marketing to underpin future growth of core products.”

Revolution Beauty expects revenue to decline at a slower pace in the second half and return to growth in the fourth quarter of the year, thanks to “new strategic growth initiatives.”

Boss Lauren Brindley said these included a “reinvigorated line of makeup innovation, the launch of our new skincare range and the global expansion of our value brand, Relove”.

He added: “This year is a year of transformation for the company as we focus on simplifying the business, improving our operational efficiency and positioning ourselves for sustained, profitable success.”