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Elizabeth Arden Hires Goldman Sachs

The beauty company is “exploring potential strategic alternatives.”

Blame it on Justin Bieber.

 

Elizabeth Arden Inc., which bet on the celebrity fragrance trend by buying the pop sensation’s first scent from Give Back Brands in 2012, hasn’t been able to keep the momentum going and is now ready to play the field and explore its options — while cutting costs by up to $50 million.

The beauty company said late Monday that it hired Goldman, Sachs & Co. to help its board in “exploring potential strategic alternatives to enhance shareholder value and to accelerate the growth and maximize the value of its brand portfolio.”

There were reports that Goldman had been hired last month, but the official acknowledgement effectively put a “For Sale” sign on the company. And the difficulties facing Arden were underscored by its third-quarter losses, which widened to $26.4 million, or 89 cents a share, from $1.3 million, or 4 cents, a year earlier.

Sales for the three months ended March 31 fell 20.3 percent to $210.8 million from $264.4 million.

Arden attributed the sales drop “primarily due to fewer fragrance launches in the fiscal 2014 period as compared to the prior year and lower replenishment orders at a number of non-prestige retail accounts.”

On a conference call with analysts, E. Scott Beattie, chairman, president and chief executive officer, was more specific and noted: “We are experiencing stronger erosion from several fragrance brands including the Justin Bieber [franchise].”

Investors were skittish and drove the firm’s stock down 16.7 percent to $29.68 in after-hours trading. That decline, were it to hold, would cut the company’s market capitalization to $880 million, a drop of more than $175 million.

Last month, South Korean giant LG Household & Healthcare Ltd. was reportedly considering a bid for the beauty firm, which markets products under an array of brands, including Elizabeth Arden, Britney Spears, Elizabeth Taylor, Jennifer Aniston, Taylor Swift, Juicy Couture, Geoffrey Beene, Halston, Ed Hardy, John Varvatos and Lucky Brand.

“Clearly these results are not indicative of the strength and potential of our brand portfolio,” Beattie said of the third-quarter loss. “We have been hampered this year by weak performance in our North American mass fragrance business and a global environment that has been highly promotional. We also did not have the same level of significant fragrance innovation as we did last year. This coincided with an unprecedented number of weather-related store closures in our North America business during the quarter, which is our seasonally weakest quarter, exacerbating the impact of these other factors and contributing to the weak overall results.”

He added that: “The status quo is not acceptable. While we are encouraged by recent retail sales performance in our North American mass fragrance business, we must position the company for success in an economic environment that remains challenging. We are taking corrective action to improve the performance of the business, focusing on tightening distribution, improving gross margins and restoring profitability and return on invested capital to levels consistent with historical results.”

Beattie’s turnaround plan comes in four parts: improved distribution, a streamlined organization, renewed focus on gross margins and better in-store presentation.

Perhaps aiming to make itself more attractive to potential bidders, Arden also on Monday laid out a broad restructuring and cost-saving program that is intended to reduce overhead and boost gross margins.

The program is aiming to achieve $40 million to $50 million in annual savings once it is completely rolled out.

Arden is contemplating a shift on the international front as well that would have it rely more heavily on distributors and regional joint ventures, apparently de-emphasizing its own local operations.

On the call, Beattie noted: “In the past, we’ve relied on trying to grow the top line to leverage our overhead structure. And we realize that we don’t have the benefit of that — we have effectively done that [already]. So we are going to right size our cost, right size our business model create more of a variable cost model.”

Arden is joining a number of beauty firms on the selling block at a time when mergers and acquisitions activity in the industry is heating up. As reported in WWD’s Beauty Inc, brands like NYX Cosmetics and Perricone MD are actively looking for a buyer; even more have recently explored the process, such as Carol’s Daughter, Yes To Inc. and Ahava. Some deals that didn’t get done last year are moving into this one, creating momentum in the first half. So far this year, L’Oréal has bought Chinese facial mask-maker Magic Holdings International Ltd.; TPG Growth acquired a majority stake in E.l.f. Cosmetics from the brand’s founders and TSG Consumer Partners, and Japan’s Kosé Corp. bought 93.5 percent of Tarte Cosmetics from founder Maureen Kelly and Encore Consumer Capital.

“The market is strong,” says Marco Habert, a managing director at Deutsche Bank, but added, “We are not seeing a flood of deals due to limited supply. Many of the companies on the market have been there for some time. People are waiting for more attractive deals. But there is a lot of buyer interest.”