Bear of the Day: Elizabeth Arden (RDEN) - Bear of the Day

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Elizabeth Arden ( RDEN ) is a beauty products company that makes high-end cosmetics, skin-care products and fragrances. It has an extensive portfolio of beauty brands sold in over 120 countries.

Take-over Interest Withdrawn, Shares Plunge

On June 26, South Korean cosmetics firm LG Household & Healthcare said that it was no longer interested in acquiring Elizabeth Arden, citing its restructuring plans. The shares slumped 17% after the news. Earlier in April, an interest by LG affiliate had led to a surge in the stock price.

Restructuring Plan; Exploration of Strategic Alternatives

On June 24, the company announced a restructuring program that included cutting jobs and exiting some unprofitable businesses.

Earlier during the quarterly conference call, the company announced that they had engaged Goldman Sachs to assist the Board of Directors in exploring potential strategic alternatives to enhance shareholder value and to accelerate the growth and maximize the value of its brand portfolio.

Disappointing Quarterly Results

On May 12, Elizabeth Arden  reported results for its third fiscal quarter results. Net sales for the quarter were $210.8 million, down 20.3%, or 19.4% excluding the impact of foreign currency rates. Net adjusted loss was $0.84 per share, way worse than the Zacks Consensus Estimate of earnings of $0.02 per share.

Net sales of the Company's North America segment decreased 23% primarily resulting from store closings due to harsh winter weather and continued poor demand in the fragrance category.

Net sales in the international segment decreased 16%, from the same quarter prior year and Elizabeth Arden branded skin care, color and fragrance products sales declined by 19%.

According to the management, the beauty market particularly in fragrance is experiencing heavy price discounting and promotional activity.

Downward Estimates Revisions

After disappointing results, analysts have slashed their earnings estimates for the company. Zacks Consensus Estimates for the current and the nest fiscal year now stand at $0.19 per share and $0.93 per share respectively, down from $0.28 per share and $1.06 per share, 60 days ago.

Falling estimates sent Elizabeth Arden  back to Zacks Rank # 5 (Strong Sell) in May.

The Bottom Line

Cosmetics industry is currently ranked # 250 out of 265 Zacks industries (bottom 6%). Declining sales and deep discounts continue to hurt the outlook for the industry. Whether Elizabeth Arden's turnaround plans will work in the longer term remains to be seen but the short-term outlook remains very cloudy. Investors may like to avoid the stock for the time being until there is better visibility.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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