Will Elizabeth Arden Keep Going Downhill?

Does the second quarter suggest there's no hope for Elizabeth Arden?

Apr 20, 2014 at 11:00AM

There is no denying that intense competition and a slowdown in consumer spending have negatively affected the key players in the retail industry. Nevertheless, a few companies, like Nu Skin Enterprises (NYSE:NUS), successfully cushioned the blow and posted impressive results. On the flip side, Elizabeth Arden (NASDAQ:RDEN) and Coty (NYSE:COTY) weren't able to report healthy performances. Let's analyze Elizabeth Arden in detail before we take a look at its peers.

Second-quarter results
Elizabeth Arden posted a disappointing second-quarter performance as a result of declining sales from both its U.S. and international business. On an adjusted basis, excluding a one-time gain and costs related to repositioning and restructuring, earnings per share dropped by 32% to $1.08 per share. However, according to Bloomberg's data, the company beat analysts' expectations of $1.07 a share. Revenue tumbled 10.6% to $418.1 million.

North America: Net sales for North America dipped 13%. This was mainly attributed to weaker than expected retail sales in the holiday season, decreased traffic, and a higher volume of fragrances launched last year. Prestige retailers' performance was satisfactory and in-line with the expectations, while retail sales for Elizabeth Arden branded products grew by 4%.

International: Net sales at the company's International segment fell 5%; the decline was largely driven by weak performance in the European markets, where high discounts from peers kept the customers away from the company's stores. In contrast to Europe, Greater China performed pretty well.

What's cooking at Elizabeth Arden?
Last year, Elizabeth Arden got fragrance licenses for famous fashion brands like True Religion, BCBGMAXAZRIA, Nicki Minaj, and Justin Bieber. This was part of the company's long-term strategy to change its image to a more upscale cosmetics company. The initiatives are gradually starting to pay off as the company's retail sales at its flagship counter grew by 24% in North America, while it jumped 9% internationally. Many analysts are of the view that Elizabeth Arden's brand repositioning should be seen as an encouraging sign. Connie Maneaty from BMO Capital Markets said, "The Elizabeth Arden brand repositioning, the largest opportunity in RDEN's history, remains on track, and is gaining momentum."

After posting weak results in the quarter, Elizabeth Arden is trying to revamp its sales. Recently, the company launched its Elizabeth Arden Rx skincare line that will be available only in physician offices. This launch is in line with the company's strategy of growing through selling its products across professional skincare market, spa, and prestige retail.

US CosmeceuTechs, a skin care company that develops products for professional dermatologists, has designed the new Elizabeth Arden Rx skincare line. In 2005, Elizabeth Arden partnered with Joe Lewis (the CEO of US CosmeceuTechs) to launch Prevage, which won more than 160 international beauty awards. Lewis is renowned for introducing some of the world's most famous skincare ingredients like Idebenone, Alpha-Hydroxy, and CoffeeBerry. Regarding the partnership, Joe Lewis said that USC's R&D technology combined with Elizabeth Arden's aesthetic formulation expertise will not only prove fruitful for physicians and skincare professionals, but for patients as well.

Elizabeth Arden has lowered its full-year EPS guidance from $2.55-$2.70 per share to $2.30-$2.50 a share. Analysts at Thomson Reuters anticipate per-share earnings of $2.66.

Industry peers
Beauty care manufacturer Coty reported awful earnings in its most recent quarter. Besides high promotional activities from peers, prevailing softness in the U.S. market -- especially in mass fragrances and nail categories -- contributed to anemic sales for the company. Earnings tumbled 33% to $0.21 per share, missing analysts' forecast of $0.29 a share. Revenue also slipped to $1.32 billion; color-cosmetics declined by 9%, while sales for Fragrances and Skin & Body Care dropped by 2% and 1%, respectively. Coty has recently announced a partnership with Piaggio Group to develop and distribute a new line of fragrances for both men and women under the brand name Vespa.

Nu Skin, unlike its rival Coty, posted a spectacular $2.02 per share in earnings, compared to $0.97 a share in the year-ago quarter. The company's sales grew by a whopping 82% year over year to $1.06 billion. Analysts at Thomson Reuters forecasted earnings per share of $1.99 on sales of $1.07 billion. Earlier this year, the company was accused of illegally selling and making unjustifiable claims about its products in China. However, it managed to settle the probe by agreeing to pay $540,000 in fines to the government. With this, the company is expected to resume its normal business activities in the country and reap healthy returns from a profitable Chinese market that accounts for 32% of the company's total sales.

Final thoughts
Elizabeth Arden's latest quarterly result wasn't up to the mark. The only bright spot during the quarter was the company's retail sales at its flagship counters, which is why many analysts are still hopeful about the company's recovery. Altering the company's brand image will work, but it needs more time before having a real impact on earnings. The company's latest deal with US CosmeceuTechs will prove to be fruitful, but it will also take time before generating sizable income. 

The company's share price has gone down by more than 30% during the last 52 weeks. However, from the recent retail sales' data, it can be said that the worst is over for the company. Considering that the company needs more time to recover, I remain neutral on Elizabeth Arden at this point.

6 stock picks poised for incredible growth
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Zahid Waheed has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers