By  on February 6, 2009

Sales of Elizabeth Arden Inc.’s fragrances suffered in the second quarter, along with the company’s profits, as department stores stocked more lower-margin gift sets for the holiday season and mass stores reduced replenishment.

For the second quarter ended Dec. 31, Arden’s net income dropped 59.6 percent to $13.7 million, or 48 cents a diluted share, from $33.8 million, or $1.15, in the year-ago period. Excluding expenses and noncash charges related to the Liz Claiborne license agreement and restructuring expenses, earnings declined 48.6 percent to $17.38 million, or 61 cents a diluted share. Sales for the quarter were $370 million, down 12.4 percent, or 8.7 percent, excluding the unfavorable impact of foreign currency, compared to last year.

E. Scott Beattie, chairman, president and chief executive officer of Arden, said that Arden’s quarterly department stores sales in the U.S. were far lower than expected, with the skin care and color businesses down 8 to 9 percent and department store fragrance sales “much worse.”

He attributed the fragrance decline to retailers buying more gift sets, perceived as a greater value, rather than basic stock replenishment, which generates higher margins. Also, there was no new fragrance launch for the holiday season.

Travel retail sales were down 33 percent, attributed to “tremendous inventory de-stocking.”

Net sales and operating profit for the firm’s U.S. business were down about 10 percent for the quarter, while sales for the six months were down about 3 percent and operating profit was up 4 percent.

The firm’s mass business for the second quarter was down approximately 14 percent due to credit restraints at its smaller retail accounts as well as reduced replenishment, which Arden said came in below expectations and did not keep pace with sell-through results. Operating profit for the quarter at mass was down 8 percent. For the year to date, mass retail sales were down 11 percent. As for retail fragrance, sales were down 9 percent for the quarter and 7 percent in the year to date. Arden owns or distributes six of the top 10 women’s fragrances and five of the top 10 men’s scents. Retail sales of Arden fragrances at department stores fell 6 percent for the six months.

The launch of Elizabeth Arden Pretty, which is planned for spring, is expected to help the third and fourth quarters. Arden noted that the launch of Viva la Juicy was the best fall launch at department stores, outselling all other new brands in December, and on the mass side that M by Mariah Carey was the number-one ladies launch for the year.

Arden expects sales to decrease by 1 to 3 percent for the second half of the fiscal year. For the full fiscal year, Arden’s guidance is for net sales to decline by 4 to 5 percent, and for earnings per diluted share to be in the range of 71 cents to 84 cents.

For the six months, net income fell 96.6 percent to $1.2 million, or 4 cents a diluted share, but was down 41.2 percent, to $20.5 million, or 71 cents, excluding the effects of the Claiborne agreement and restructuring. Sales declined 5.8 percent, to $654.2 million, and dropped 3.4 percent without the effect of currency fluctuation.

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