Shares of cosmetics company Elizabeth Arden Inc. (RDEN) slumped 17% on Jun 26, 2014, soon after South Korean company LG Household & Healthcare Ltd. reportedly announced lack of interest in pursuing an acquisition of company on the same day.
In Apr 2014, the South Korean company considered a bid to take over Elizabeth Arden as part of its strategy to expand overseas. LG Household & Healthcare, an LG Group affiliate, is one of South Korea's top cosmetics firms owning some top brands like O Hui and the Face Shop, well known among Chinese tourists.
Investors believe that LG Household lost interest in the acquisition after rumors regarding Elizabeth Arden’s plan to undertake a restructuring and cost cutting program in order to combat margin pressures and soft revenues spread on Jun 24.
Per media reports, Elizabeth Arden plans to start a restructuring and cost cutting program following its recent business slowdown. This program includes job cuts, exiting unprofitable businesses and discontinuing some products to boost long-term profitability.
This global prestige beauty products company has been witnessing soft revenues of late because of declining sales in the fragrance category. In May, the company reported weak third-quarter fiscal 2014 results. Elizabeth Arden reported a loss of 84 cents per share, unexpectedly lower than the Zacks Consensus Estimate and the prior-year quarter earnings of 2 cents per share. Reduced store traffic and unprecedented store closings in the third quarter due to harsh winter resulted in the decline.
Net sales decreased 23% in the North America segment during the quarter as the company was able to launch only a few new fragrances compared with the prior year. Also, lower replenishment orders at a number of non-prestige retail accounts led to the decline. Net sales decreased 16% in the International segment due to competitive pricing pressure.
Elizabeth Arden currently carries a Zacks Rank #5 (Strong Sell). Coty Inc. (COTY) and Helen of Troy (HELE) are better-ranked cosmetic companies sporting a Zacks Rank #1 (Strong Buy) and a Zacks Rank #2 (Buy), respectively. Another stock worth considering in the broader consumer staples sector includes Inventure Foods, Inc. (SNAK) with the same Zacks Rank as Helen of Troy.Read the Full Research Report on RDEN
Read the Full Research Report on COTY
Read the Full Research Report on HELE
Read the Full Research Report on SNAK
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