By and  on August 14, 2006

NEW YORK — Share prices of major beauty companies fell Friday because of uncertainty over what impact tightened airport security measures will continue to have on duty free sales.

Shares of the Estée Lauder Cos. fell nearly 6 percent to $36.77 at the close of trading on the New York Stock Exchange Fri­day. On the Nasdaq, shares of Inter Parfums Inc. dipped about 2 percent to $17.28 and Elizabeth Arden slid almost 4 percent to $15.58. P&G shares were unchanged at $60.26, and Revlon rose more than 3 percent to $1.27 on the NYSE.

Beauty firms have come to rely on duty free fragrance sales, which promise twice the margin of department store sales. Industry experts noted that the travel slowdown following the Sept. 11 attacks hit the fragrance business with full force.

Cathy J. Leonhardt, director at Peter J. Solomon Co., said Thursday's terror scare and the security measures that followed — including a ban on any liquid items being carried onboard — likely will impact duty free sales over the short term. The financial impact of the foiled plot will not be as devastating as it was post-Sept. 11, she noted, because those attacks were followed by the SARS scare, which exacerbated declining duty free sales.

In a research note Friday, Oppenheimer & Co. analyst Linda Bolton Weiser wrote that the ban on liquids such as fragrances could negatively impact Lauder, Inter Parfums and their prestige beauty peers in the short term.

"However, if end consumer demand remains relatively unchanged, then sales could merely shift from the travel retail channel to traditional channels, and the sales of Lauder and Inter Parfums would not be impacted in the long term," stated Weiser. "If business travelers opt to not check baggage, purchase consumption of personal care products could get a boost."

Travel retail accounts for 7 percent of sales and 10 to 12 percent of annual operating profit for both Lauder and Inter Parfums, stated Weiser, adding that Procter & Gamble generates about $1 billion in annual prestige fragrance sales, a small portion of which is from travel retail.

She noted the duty-free business may have to adjust its service model, and suggested that travelers could perhaps order upon their departure and pick up the fragrance at their destination. Several analysts expressed confidence that, if the ban on liquids persists, duty free retail will find ways to adapt.Michael Payne, executive director of The International Association of Airport Duty Free Stores, a trade association with U.S. and international members, said duty free shops in the U.S., including those in New York and Miami, were returning to business as normal, which calls for purchased products to be hand-delivered to the airplane by airport personnel. But as of Friday afternoon, shops in Cincinnati and Houston were limiting sales of liquids for security reasons. Payne said phone conversations with Latin American members indicated U.S. air carriers in several countries, including Argentina and Chile, had banned the sale of liquids aboard their aircrafts.

Robert Thurlow, chief executive officer of Molton Brown USA, stated, "Our duty free shops, the Molton Brown travel spa at Heathrow and stand-alone stores in central London were all affected." He noted that there was a ban on purchasing product at duty free shops in London, but that it was lifted on Friday.

"Sales at our duty free shops were down 35 percent…[Thursday]. Our spas were affected due to the fact that our clients are first- and club-class passengers flying British Airways and many canceled their plans after hearing of the delays and [flight] cancellations," Thurlow said. "Our standalone stores in central London were affected because citizens in the U.K. were advised to only travel if necessary."

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