The price pinch is intensifying for some of the biggest names in thebeauty world, and they’re fighting back with cost savings whereverpossible to offset inflating commodity costs.
On Thursday, RevlonInc., Elizabeth Arden Inc. and Procter & Gamble Co.’s beauty unitall reported higher revenues for the quarter ended last month, but theirbottom-line results bore distinctly different signatures. Revlon’sprofits were up and Arden’s loss was down while P&G’s beauty unitsaw a contraction in its income.
P&G is seeking to increaseits productivity and initiating cost savings measures to deal with theimpact of a forecasted $1.8 billion in commodity cost increases thisyear.
The firm’s chief financial officer, Jon Moeller, said, “Weare also facing rapid and significant increases in commodity costs.Since the beginning of the fiscal year, the year-on-year impact fromhigher costs has more than tripled.…In the March quarter alone, inputcosts are up more than $400 million before tax versus the prior year.”
Headded, “For the first three quarters this fiscal year, we havegenerated an average of 150 basis points of cost savings per quarter.”
It’salso reducing its exposure to commodity and energy costs throughsustainability efforts, and offsetting costs with selective pricing. Forinstance, in February, P&G increased prices on Gillette shavingcartridges and disposable razors in the U.S. More increases are plannedfor June, such as Head & Shoulders and a number of nonbeautyproducts.
For the company’s third quarter ended March 31, thebeauty unit’s net earnings from continuing operations declined 3 percentto $547 million, while sales gained 5 percent to $4.87 billion onorganic volume growth of 6 percent. Organic sales in beauty gained 4percent.
P&G’s overall profits from continuing operationsincreased 11.1 percent to $2.87 billion, or 96 cents a diluted share,from $2.59 billion, or 83 cents, a year earlier. Sales grew 5.5 percentto $20.23 billion, from $19.18 billion in the prior-year period. Organicsales gained 4 percent and volume increased 5 percent with growth inall six business segments.
The company said it expects tomaintain its current level of media spending at approximately 10 percentof sales. Bob McDonald, chairman, president and chief executiveofficer, said that, as P&G moves more toward different mediums,including digital, “We’re actually getting a lot more for ouradvertising spending than we ever have before.”
Revlon, for itspart, for now is largely deflecting the impact of higher commoditycosts. President and ceo Alan Ennis said, “Like other companies, yes, weare experiencing some input cost pressures particularly from oil-basedcommodities as it relates to plastics, etc. But we are looking foropportunities to offset those costs with other savings, so [it’s]nothing material to us at this point.”
Revlon saw first-quarternet earnings jump to $10.4 million, or 20 cents a share, from $2.2million, or 4 cents, in the year-old period. The quarter included $9.7million in costs associated with refinancing-related expenses. Sales forthe quarter ended March 31 gained 9.1 percent to $333.2 million, from$305.5 million.
Revlon bolstered its nail color business byacquiring Sinful Cosmetics, a value-priced mass market brand soldprimarily in the U.S., for $39 million on March 17.
“Revlon’sstrategic objective for the last couple of years has been to driveprofitable growth. And Sinful is a nice complement to our existingportfolio,” Ennis told WWD, noting that Sinful is the number-one nailcolor brand in Walgreens in terms of unit sales, according to NielsenCo. data.
The firm also turned up the heat on competitors withincreased advertising spending last year and in the first quarter. “Weare spending at competitive levels and we’ll continue to do that,” saidEnnis.
Elizabeth Arden said that, although it would experience“some level” of commodity inflation, particularly in glass and in fuelsurcharges, it is finding ways to mitigate those costs with improvementsin pricing or with efficiencies from its global reengineeringinitiative, launched two-and-a-half years ago.
These costs won’tlikely materially harm margins, said company chairman, president and ceoE. Scott Beattie, who focused more on the fact that the “seasonablyweak” third quarter was profitable for the first time in the company’shistory.
“This fiscal year we will be profitable in our all fourquarters and intend to stay that way going forward,” he said.
Forthe period ended March 31, Arden shrank its net loss to $3.3 million,or 12 cents a diluted share, from a loss of $3.9 million, or 14 cents,in the year-ago quarter. The company said its adjusted earnings totaled 2cents a share.
The combination of an 8.4 percent increase inrevenue in North America, to $142.8 million, and a 3.7 percent gain ininternational volume, to $88.5 million, lifted net sales 6.6 percent to$231.3 million from year-ago sales of $217 million.
Despiteoverall sales growth, the ceo noted that the pace of the brand’sinternational growth has decelerated greatly from the 12.4 percentincrease generated in the second quarter. Beattie said the slowdown isrelated to issues like tightening distribution, raising prices andreinvesting in media spend, which should grow to 10 percent in thefirm’s fourth quarter.
Shares of P&G rose 0.8 percent to$64.50 Thursday, while Revlon’s picked up 6.7 percent to $17.45 andArden’s declined 3.1 percent to $30.75.
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