Makeup and skin care company,
Elizabeth Arden, Inc. (
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
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.
Nu Skin Enterprises Inc.
and Helen of Troy Limited
). While IPAR and NUS carry a Zacks Rank #1 (Strong Buy), HELE
has a Zacks Rank #2 (Buy)
HELEN OF TROY (HELE): Free Stock Analysis
INTER PARFUMS (IPAR): Free Stock Analysis
NU SKIN ENTERP (NUS): Free Stock Analysis
ELIZABETH ARDEN (RDEN): Free Stock Analysis
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