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Elizabeth Arden Shares Plunge on Weak Q4 Earnings

Zacks Equity Research

Shares of makeup and skin care company Elizabeth Arden, Inc. (RDEN) have been falling since the company reported weak second quarter fiscal 2014 results on August 19, 2014. Shares slid almost 23% the next day when the earnings results were reported. The company posted a wider-than-expected loss and lower than expected sales during the quarter.

Fiscal fourth-quarter (ended Jun 30) loss per share of $1.04 was wider than the Zacks Consensus Estimate of a loss of 29 cents by 96.4%. The results compared unfavorably with earnings of 10 cents in the prior-year period due to lower sales.

Elizabeth Arden, Inc - Earnings Surprise | FindTheBest


Revenues slipped 24.8% year over year to $201.2 million and missed the Zacks Consensus Estimate of $245 million by 21.8%. Revenues also failed to meet management’s expectations due to higher-than-expected sales decline in celebrity fragrances, especially the Justin Bieber and Taylor Swift brands. Moreover, destocking of retail inventories and the company’s decision to tighten global distribution to improve pricing and reduce discounting of its brands affected sales negatively during the quarter.

Net sales at the North American and International segment declined 14% and 8%, respectively. However, the company reported strong sales in the flagship counters situated in North America and international flagship doors where sales increased 9% and 8% year over year, respectively.

Gross margin declined 900 basis points (bps) to 40.2% in the quarter due to sluggish top-line growth during the quarter.

Fiscal 2014 Results

Net loss for fiscal 2014 came in at 55 cents comparing unfavorably with earnings of $2.14 reported a year ago. The earnings results exclude repositioning and restructuring costs incurred by the company during the year. The Zacks Consensus Estimate for fiscal 2014 stood at earnings of 19 cents.

Net sales declined 12.7% year over year to $1.17 billion (12.1% excluding currency). Sales also missed the Zacks Consensus Estimate of $1.21 billion by 3.4%.

Strategic Investment of Rhône Capital

During the fourth quarter and fiscal 2014 earnings call, Elizabeth Arden announced that the private equity firm Rhône Capital had agreed to buy 7.6% of the company in the form of $50 million of preferred stock and warrants.


Management expects modest improvement in fiscal 2015 earnings.The challenging conditions which have been affecting the company for the past few quarters are expected to continue in the first quarter of 2015 as well.  Sales during the first half of fiscal 2015 are expected to be impacted negatively by lower level of product innovation. However, sales will improve in the second half as product launches gain momentum. Additionally, the company will be able to derive benefit from positive pricing in the second half.

Margins are expected to expand due to improvement in pricing, better mix, lower discounts and realization of reduced supply chain and product costs.

Other Stocks to Consider

Elizabeth Arden carries a Zacks Rank #3 (Hold).

Another cosmetics company, Estee Lauder Companies Inc. (EL), also missed estimates in its posted fourth-quarter fiscal 2014 earnings of 45 cents per share (excluding restructuring charges) which grew a massive 83% from the prior-year results. Earnings, however, missed the Zacks Consensus Estimate of 56 cents by 20%.

 Other stocks in the consumer staples sector worth considering are Treehouse Foods, Inc. (THS) and Pinnacle Foods Inc. (PF). While Treehouse sports a Zacks Rank #1 (Strong Buy) and Pinnacle hold a Zacks Rank #2 (Buy).

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