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Revlon Inc(REV-N)

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Why Revlon Stock Was Sliding Today

Motley Fool - Tue Jun 28, 2:11PM CDT

What happened

Shares of Revlon (NYSE: REV) were pulling back today, taking another step in a wild ride since the cosmetics company filed for Chapter 11 bankruptcy protection nearly two weeks ago.

Though the company owns several prominent cosmetics brands including its namesake, Elizabeth Arden, and Almay, it has struggled for years with a heavy debt burden and more recently with supply chain constraints that ultimately forced it into Chapter 11.

However, something surprising happened after Revlon's filing. After shares plunged to just over $1 on the announcement, they skyrocketed to more than $8 in just a few days, fueled in part by a short squeeze organized by Reddit traders.

Since then, the stock has cooled off a bit as there's been no fundamental change to its prospects. As of 1:26 p.m. ET, the stock was down 14.9% today.

So what

In its June 16 announcement, Revlon said it had voluntarily filed for Chapter 11 in New York to "strategically reorganize its legacy capital structure and improve its long-term outlook."

The cosmetics company also said it expected to receive $575 million in debtor-in-possession financing, which will enable it to restructure while it's in bankruptcy protection and provide liquidity for day-to-day operations.

CEO Debra Perelman said, "Today's filing will allow Revlon to offer our consumers the iconic products we have delivered for decades, while providing a clearer path for our future growth. Consumer demand for our products remains strong -- people love our brands, and we continue to have a healthy market position. But our challenging capital structure has limited our ability to navigate macro-economic issues in order to meet this demand."

Now what

It's impossible to predict what will happen to Revlon's stock from here on out after the surprising short squeeze. Typically in a bankruptcy protection filing, common stockholders are wiped out and the stock goes to zero, but that doesn't always happen.

Still, after one short squeeze pop, another one seems less likely. Investors are probably best getting out of the stock now.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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