Elizabeth Arden Inc.’s multichannel business model, boosted by its union with Liz Claiborne, will usher the beauty company through a tough holiday season, the firm’s chairman, president and chief executive officer E. Scott Beattie told analysts Thursday.
Arden is bracing for a challenging and pivotal second quarter on the heels of posting a first-quarter loss, compared with a year-ago gain, because of costs related to the integration of Claiborne’s fragrance brand portfolio. The “challenging consumer and retail environment worldwide and the impact of foreign currency fluctuations” also led the firm to reduce its sales and earnings guidance for the full year.
For the first quarter ended Sept. 30, Arden posted a net loss of $12.5 million, or 45 cents a diluted share, compared with net income of $350,000, or 1 cent a share, in the year-ago period. Excluding restructuring expenses and those related to the company’s recent license agreement with Claiborne, net income for the quarter was $3.1 million, or 11 cents a diluted share, compared with $1.1 million, or 4 cents a share, in the year-ago quarter.
Beattie said, despite a strong new product offering, “Our retailers in North America experienced a dramatic falloff in traffic, particularly from mid-September forward. As a result of this reduction and store retail performance, many of our retailers have been very cautious with regard to basic stock replenishment and inventory build for Christmas.”
With holiday approaching, many retailers are stocking up on promotional gift sets and curbing orders on basic stock replenishment, said Beattie. Net sales gained 4.6 percent to $284.2 million from $271.8 million a year ago. Revenues rose slightly more, 4.8 percent, when the unfavorable effects of foreign currency translation were excluded.
For the quarter, net sales in the North American fragrance business gained 9 percent, driven largely by the addition of the Claiborne portfolio, which helped lift revenues in U.S. department stores 45 percent. The gains were partially offset by a 4.6 percent decline in Arden’s mass market fragrance sales.
North American fragrance sales — which include department stores, mass retailers and e-commerce — accounted for between 60 and 65 percent of Arden’s overall sales, according to the company.
Arden grew its Prevage high-tech skin care franchise by 27 percent in the quarter with the U.S. introduction of Prevage Body, which will begin to roll out internationally in the second and third quarters.
On the international front, net sales ticked up 1 percent, said the company.
Beattie said he expects second-quarter results to benefit from a spate of upcoming launches, including the Elizabeth Arden Pretty fragrance and the international launch of Prevage Body. He added that recent introductions, namely Mariah Carey Luscious Pink, Viva La Juicy, Rocawear 9IX and Usher’s UR for Men and UR for Women, are performing strongly. During the quarter, the company increased advertising and promotional spending by 18 percent.
Arden said it will spend a significant amount at retail on displays and signage to entice hesitant and value-focused consumers to buy during the holiday season, the company’s second quarter. Beattie said the mass market accounts for about 80 percent of the company’s business in the second quarter.
Citing slower consumer spending, the company lowered its fiscal 2009 guidance for the first half and the full year. Arden expects full-year EPS of $1.50 to $1.75, down from the $1.65 to $1.85 guidance introduced at the conclusion of the fourth quarter. Sales, initially expected to rise 12.5 to 14 percent, are now anticipated to be up 6.5 to 8.5 percent for the year and 1 to 3.5 percent in the first half.
Arden completed the integration of the Claiborne fragrance brand portfolio, which includes Juicy Couture, Lucky Brand and other scents, in late August, and retained Art Spiro, executive vice president of Claiborne brands, to lead global development.
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