Shares of Elizabeth Arden Inc. and Estée Lauder Cos. Inc. dove in trading Friday, and dragged down much of the rest of the beauty sector, after both firms lowered their second-quarter earnings expectations due to disappointing holiday sales and shrinking demand.
Arden stock took the worst beating, giving up 38.9 percent to close at $7.06, well below its previous 52-week low of $10.55. Friday’s decline was the largest of all stocks tracked by WWD. Lauder fell 10.1 percent to close the day at $26.11. Other beauty vendors feeling the sting included Inter Parfums Inc., down 10 percent to $5.59; Avon Products Inc., which gave up 7.7 percent to close at $20.25, and Revlon Inc., down 2.8 percent to $6.21.
Lauder said it expects second-quarter profits to be between 75 cents and 82 cents a share, compared to its own estimates last October of earnings per share in the 97 cents to $1.05 range. It now expects second-quarter sales to drop 6 percent compared to a year ago, as opposed to a previously predicted 2 to 3 percent gain.
“Our business was no exception to the downturn in consumer spending, and our second-quarter results will come in lower than we expected,” said chief executive officer William Lauder.
Full-year fiscal 2009 earnings per share are expected to finish between $1.30 and $1.60, compared to an earlier prediction of $2.20 to $2.50. It expects full-year sales to either remain flat or fall as much as 3 percent versus its prior guidance of 3 to 5 percent growth.
In a research note, Deutsche Bank securities analyst Bill Schmitz Jr. said Lauder’s revision was not entirely unexpected.
“With its premium brand offerings and prestige cosmetics spending highly discretionary, as well as exposure to travel retail, it is not surprising that the company is severely impacted by the global deterioration in economic conditions,” he wrote.
Before the market opened Friday, Arden said that, for the second quarter ended Dec. 31, it expects a profit, excluding certain expenses, of 57 to 61 cents a diluted share. The company had previously predicted EPS of between $1 and $1.10. It anticipates sales in the quarter between $365 million and $370 million, a drop of 12.5 percent to 13.5 percent versus last year.
“The performance of our U.S. Elizabeth Arden prestige department store business was much weaker than we had anticipated, though consistent with overall trends experienced in the channel,” said E. Scott Beattie, chairman, president and ceo. “Additionally, economic conditions in our higher margin travel retail and distributor markets worsened considerably in November and December, which negatively impacted our international results.”
For the second half of its fiscal year, which ends June 30, Arden now expects to see EPS of 1 cent to 13 cents on a sales decline of 1 to 3 percent. The company predicts full-year earnings per share in the range of 71 cents to 84 cents, less than half the previous estimate of $1.50 to $1.75.
Standard & Poor’s Ratings Services said that its ratings and outlook were unaffected by Arden’s lowered guidance.
“Although we believe the slowdown in consumer spending and deteriorating global economic conditions [have] substantially affected the company’s performance, we expect that Elizabeth Arden will continue to maintain adequate liquidity by further working down inventory levels and generating sufficient operating cash flow to help fund capital spending and planned growth initiatives,” the agency wrote in a report.
Both Elizabeth Arden and Estée Lauder will report complete second-quarter results on Feb. 5.