Makeup and skin care company, Elizabeth Arden, Inc. (RDEN), recently announced dismal fourth-quarter and fiscal 2013 results which were significantly below expectations. The share price crashed following the dismal results.
Fiscal fourth quarter (ended Jun 30) earnings per share of 10 cents missed the Zacks Consensus Estimate of 32 cents by 68.8%. Earnings also declined 64.3% from the year-ago levels due to lower revenues and poor margins.
Revenues rose only 0.8% to $267.9 million and missed the Zacks Consensus Estimate of $289 million. Excluding currency headwinds, revenues increased 1.2%. Revenues were sluggish largely due to lower-than-expected orders from one of the largest North American mass retail customers. In addition, a weak performance in Europe, especially in UK, pulled down revenues.
Fourth-quarter net sales for North America were up 2% (in constant currency) while they were almost flat internationally. Revenues declined 18% in Europe.
The gross margin declined 150 basis points to 49.2% in the quarter due to sluggish top-line growth.
In fiscal 2013, sales increased 8.6% (up 9.6% excluding currency impact) to $1.35 billion, missing the Zacks Consensus Estimate of $1.37 billion. The top-line growth was below the company guidance of an increase in the range of 9%–11%.
Adjusted earnings (excluding one-time items) were $2.14 per share, up 3.4% from the prior year but fell short of management’s expectations of $2.30 to $2.50. Gross margins were flat year over year due to an unfavorable mix which comprised a lower percentage of sales of the higher-margin Elizabeth Arden branded products.
The company’s main priorities in fiscal 2013 were to expand the international distribution of its fragrance brands, mainly in Europe, and to accelerate the growth of the Elizabeth Arden brand – one of the most widely recognized beauty brands in the world – through brand repositioning. However, the company’s growth expectations for the Elizabeth Arden brand proved to be too optimistic, leading the company to perform below company expectations in the year. The brand grew less than 1% against the company’s expectation of 4% growth. Negative retail sales trends and even worse replenishment trends at Elizabeth Arden’s largest mass retail account in the U.S. and underperformance of the U.K. business also hurt sales growth in the fiscal year.
Weak FY14 Outlook
For full year 2014, sales are expected to grow between 3.0% and 5.0% year over year, much lower than the growth seen in fiscal 2013. Earnings are seen in the range of $2.15 to $2.30, representing approximately 4% growth at the mid-point. Currency headwinds are expected to hurt fiscal 2014 sales by 1% and earnings by 19 cents.
For the first quarter of fiscal 2014, sales growth is expected to remain flat or decline by 1% (including currency headwinds of around 1%). Adjusted earnings are expected in the range of 13 cents to 18 cents (including currency headwinds of 2 cents per share). Gross margins are expected to be flat in the first quarter, before they start improving in the second half.
In fiscal 2014 also, the company will continue to focus on its Elizabeth Arden’s brand repositioning initiative and growth of the fragrance brands overseas. Innovative marketing programs, product introductions and the upcoming holiday season could bode well for sales growth.
Elizabeth Arden is a leading global marketer and manufacturer of prestige beauty products. Its brands include fragrance brands like Elizabeth Arden and Red Door, celebrity fragrance brands of Britney Spears, Elizabeth Taylor etc., skin care brands like Visible Difference and Ceramides; and some cosmetic products under the Elizabeth Arden brand. The Elizabeth Arden brand is one of the most widely recognized beauty brands in the world.
Other Stocks to Consider
The stock carries a Zacks Rank #4 (Sell). Other companies in the cosmetics industry that are currently doing well include Inter Parfums Inc. (IPAR), Nu Skin Enterprises Inc. (NUS) and Helen of Troy Limited (HELE). While IPAR and NUS carry a Zacks Rank #1 (Strong Buy), HELE has a Zacks Rank #2 (Buy)
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