Strong economic headwinds continue to leave the beauty industry looking disheveled.
A slew of quarterly results from beauty firms Thursday indicate consumers worldwide still view even little splurges — like a lipstick, for instance — as a big deal, and place value above all else.
As a result of shoppers’ steely practicality, six out of the eight beauty firms saw profits slide in the quarter, with the steepest declines at Avon Products Inc. and Revlon Inc. Third-quarter earnings dropped 29.8 percent at Avon and 20.9 percent at Revlon, with both citing currency fluctuations and turnaround expenses as contributing to the decreases. Shiseido Co. Ltd.’s profits dropped 11.2 percent in the first half, while Procter & Gamble Co. saw a 1.2 percent dip in profits in the first quarter as its beauty unit reported a 5 percent drop in sales.
Nu Skin Enterprises Inc. and Elizabeth Arden Inc. proved the exception to the downward trend, both posting quarterly profit increases in the quarter, although Arden to a much lesser degree.
Nu Skin achieved top- and bottom-line growth for the third quarter ended Sept. 30. Profits vaulted 52.6 percent to $25.6 million, or 40 cents a diluted share, from $16.8 million, or 26 cents, in the same period a year ago. Excluding restructuring charges, earnings per share were 41 cents, in line with Wall Street analysts’ expectations, according to Yahoo Finance. Quarterly revenues came in at $152.4 million, a 6.8 percent increase from $142.8 million in the third quarter of 2008.
“From a global perspective, I would say that the third quarter reflects [the] most consistent, uniform results we’ve ever generated,” Truman Hunt, president and chief executive officer of Nu Skin, told analysts during a conference call Thursday.
Arden Cuts Inventory
At Arden, improved trends in the travel retail and distributor markets, as well as more favorable foreign currency rates, helped the beauty firm post an unexpected first-quarter profit.
For the period ended Sept. 30, Arden earned $40,000, or breakeven per diluted share, versus a net loss of $12.5 million, or 45 cents a share, in the year-ago quarter. Excluding restructuring and other expenses, the firm said net income was $1.5 million, or 5 cents a diluted share, compared with a profit of $3.1 million, or 11 cents a share. Revenues declined 6.7 percent to $265.2 million from $284.2 million in 2008. Analysts expected a net loss of 6 cents a share, excluding special items, on sales of $262.9 million, according to Yahoo Finance.
E. Scott Beattie, chairman, president and ceo, touted the company’s quarterly gross margin, which improved to 44.1 percent of sales, versus 37.4 percent a year ago. Inventory was also reduced by $105 million from September 2008 levels, contributing to a $92 million reduction in credit line and accounts payable balances. The company said shipments to the mass retail channel fell 3 percent, even though its products registered positive sales at retail.
“We’re not seeing any fundamental changes so far and added inventories among our major accounts, despite more anecdotal evidence that there are more out-of-stocks and empty shelves,” Beattie said on the earnings call. “What we are seeing, however, is retailers working on logistical improvements which will speed up store-level replenishment over the holidays.”
Arden said it anticipates earnings of 65 cents to 75 cents a share for the second quarter on sales of $380 million to $390 million. For the full year, the company forecast EPS of 55 cents to 65 cents on revenues that are expected to rise 2.5 percent to 3.5 percent, or to between $1.1 billion and $1.11 billion. Analysts’ consensus estimate for the second quarter was EPS of 69 cents and for the year 59 cents.
Avon Adds Sales Representatives
Calling 2009, “a year that none of us could have predicted,” Andrea Jung, Avon chairman and ceo, told analysts, “We are well positioned to capitalize on this moment.”
She credited the turnaround strategy that the direct seller began implementing in early 2006 with creating a strong foundation to buffer the company from the tough economy.
For the third quarter ended Sept. 30, Avon’s net income was $156.2 million, or 36 cents a diluted share, compared with $222.6 million, or 52 cents, in the year-ago quarter. Revenues dipped 3.5 percent to $2.55 billion from $2.64 billion, but were up 7 percent in local currencies.
Beauty sales gained 8 percent in local currency, with growth across all categories: Fragrance sales were up 9 percent, color cosmetics were up 17 percent, personal care was up 7 percent and skin care rose 1 percent. However, translated into dollars, the fragrance, personal care and skin care businesses fell by 4 percent, and 8 percent, respectively. Cosmetics gained 4 percent on a reported basis.
During the quarter, Avon grew its active representative base by 10 percent and its overall units by 5 percent over the prior year.
“Active representative growth and sales growth are highly correlated,” said Jung, adding Avon remains focused on increasing rep retention and productivity. Next week, will mark Jung’s 10th year as ceo of the firm.
Stifel Nicolaus analyst Mark S. Astrachan wrote in a research note Thursday, “Overall, we think the result indicates momentum in representative recruitment [and] continues to drive an acceleration in currency-neutral revenue growth. Further, we believe emerging market growth remains strong and that Brazil, the company’s largest market, remains well-positioned to keep producing double-digit growth.”
Revlon’s Shares Jump
Revlon also is making strides on its turnaround efforts in the face of the recession.
The beauty firm’s third-quarter profits fell 20.9 percent to $23.1 million, or 45 cents a share, from $29.2 million, or 57 cents, a year earlier. But income from continuing operations rose to $23.1 million from a loss of $15.2 million, helping the stock turn the strongest percentage gain of all New York Stock Exchange issues. Revlon’s stock jumped $2.49, or 43.3 percent, to $8.24 on volume of 2.2 million shares, nine times its daily average over the last three months.
Sales for the three months ended Sept. 30 declined 2.5 percent to $326.2 million from $334.4 million, with U.S. sales falling 3 percent and international dropping 2.5 percent on unfavorable currency fluctuations.
Alan Ennis, president and ceo, said the consumer was holding up relatively well and pointed to ACNielsen research showing the U.S. mass color cosmetics category, excluding Wal-Mart Stores Inc., expanded 0.7 percent in the third quarter after a 1.3 percent increase in the second quarter.
“It’s still growing, which is positive, but the rate of growth is starting to slow,” Ennis told WWD. “The good news is they’re still spending money.”
Ennis said it was “not a bad quarter on the sales side, given what else is out there,” but noted there was still a lot of uncertainty in the marketplace.
The destocking at retail that was seen in the second quarter appears to have tapered off, and Revlon said its impact on third-quarter sales was not significant.
The company completed the restructuring and “right-sizing” program it laid out in May. For the nine months, Revlon’s profits fell 22.7 percent to $36 million, or 70 cents a share, from $46.6 million, or 91 cents, as sales dipped 6.1 percent to $951.3 million from $1.01 billion.
P&G Beauty Sales Suffer
During the Procter & Gamble earnings call Thursday morning, there were no specific discussions about the consumer products giant acquiring or divesting brands or companies, regardless of the firm’s free cash flow of some $4 billion in the first fiscal quarter ended Sept. 30. This was despite the fact the call followed media reports that P&G was heavily scrutinizing brands like Braun, Iams, Duracell and Pringles, and entertaining the idea of acquiring Alberto Culver Co., according to a story in The Wall Street Journal.
When it came to the financial results, P&G reported a 1.2 percent decline in first-quarter profits on sales that slid by 5.6 percent during the period ended Sept. 30.
Net earnings came in at $3.31 billion, compared with $3.35 billion, during the same year-ago period on sales of $19.81 billion, compared with $20.98 billion a year ago.
The drop in sales was due primarily to unfavorable foreign exchange impacts, the company noted.
Sales and profits notwithstanding, diluted EPS rose by 2.9 percent to $1.06, from $1.03 a year ago. EPS from continuing operations came in at 97 cents, meeting Wall Street analysts’ expectations.
“We are encouraged by the above-target July-September” [period],” Jon Moeller, P&G’s chief financial officer, told analysts during the earnings call.
Net sales of the firm’s beauty unit were down by 5 percent to $4.9 billion on a 2 percent decline in unit volume, and a 2 percent increase in organic sales, according to the firm. And grooming revenues decreased by 11 percent to $1.9 billion, reflecting an organic sales decline of 2 percent.
Moeller noted three SK-II products that were launched in Asia drove sales of the franchise up by 30 percent. He added that Olay Professional’s Pro-X line, which was launched in January, is on track to reach $100 million in first year sales.
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