Wall Street took more kindly to Elizabeth Arden Inc.’s turnaround plans Thursday than it did to Avon Products Inc.’s progress as the two firms reported quarterly results.

This story first appeared in the October 31, 2014 issue of WWD. Subscribe Today.

Both produced bottom-line numbers that were better than analysts had anticipated, but, despite Avon’s shift into the black, investors sent its shares down 9 percent to $9.97 based on growing currency headwinds and weakness in its business in the Americas seen as putting second-half improvement at risk. Shares hit a 52-week low of $9.76 before a modest late-afternoon recovery.

Arden shares rallied 3.4 percent to $16.34 as E. Scott Beattie, chairman, president and chief executive officer, expressed confidence that the company was realigning its portfolio to reflect the lesser importance of celebrity fragrances, even at the expense of sales in recent quarters, and was “satisfied” that it was on track to meet its goal of reducing its cost structure by between $40 million and $50 million a year.

Sheri McCoy, Avon’s ceo, noted that the beauty company continued to struggle to build its roster of active representatives in the U.S.

“In addition to the U.S. issue that proved deeper than we originally anticipated and the influx of several unexpected macro issues, we are now facing a tougher environment in Latin America than we expected,” she said. “So while we continue to believe that Avon is capable of mid-single-digit revenue growth longer term, it is increasingly less possible that we’ll hit our revenue growth goals in 2015.”

In the three months ended Sept. 30, the New York-based firm recorded net income of $91.4 million, or 21 cents a diluted share, compared to a net loss of $5.5 million, or 1 cent, in the year-ago period. Excluding non-recurring items, adjusted earnings per share was 23 cents, 6 cents better than the 17-cent profit expected, on average, by analysts tracking the firm.

Revenues declined 8 percent to $2.14 billion from $2.32 billion in the 2013 quarter. The total fell short of the $2.16 billion consensus estimate of analysts. At constant currency, revenues rose 1 percent.

McCoy pointed to problems retaining new representatives in Mexico, where revenues were down 6 percent on a constant-currency basis.

In Brazil, Avon’s largest market and the third-largest beauty market in the world, beauty portfolio sales were down 4 percent, beneath internal expectations, she said.

“The attractiveness of the Brazilian market has not been lost on our competitors,” she said of the increasingly crowded South American market.

With the color category weak and Brazil’s pressured middle class less likely to trade up, Avon saw resistance to the higher price points of its Luxe collection, which has been successful in European countries.

Latin American sales were down 12 percent to $1.07 billion in the quarter, up 2 percent at constant currency, while revenues in Europe, the Middle East and Africa were flat at $620 million, up 5 percent excluding currency fluctuation. North American sales dropped 16 percent to $276.7 million and were down 15 percent at constant currency.

By product category, beauty was down 8.6 percent to $1.52 billion, but was up 1 percent at constant currency, with the largest drop in the color category, which was off 12.8 percent to $371.5 million.

The fashion category dropped 8.6 percent to $331.4 million.

Among the strongest geographies for the firm were Russia, up 14 percent at constant currency, and the U.K., up 4 percent excluding exchange fluctuations as a decline in active representatives was offset by improvement in average order size.

Overall, Avon benefited from improvements in price mix and average order size, both of which rose 5 percent, but was hurt by declines in units sold and active representatives, both of which declined 4 percent.

John Loughran, interim chief financial officer, told analysts, “For the full year, we still expect to make progress towards our margins goal, but sales are likely to still be down a bit.” Adjusted operating margin was 9.3 percent of sales, an improvement of 390 basis points.

At Elizabeth Arden, a series of one-time charges from restructuring and a preferred stock issue contributed to a first-quarter loss that was 10 cents smaller than analysts had expected.

In the three months ended Sept. 30, the New York-based beauty firm’s net loss came to $45.8 million, or $1.54 a diluted share, versus net income of $1.7 million, or 6 cents a share, in the year-ago period. Stripping out restructuring and stock accretion charges, the adjusted loss came to 43 cents a diluted share, 10 cents better than the 53-cent deficit expected, on average by analysts.

Sales in the quarter fell 21.3 percent to $270.4 million from $343.6 million. The consensus estimate among analysts was for revenues of $275.1 million.

Beattie stressed to analysts on the company conference call, “We planned and budget for continued revenue weakness in Q1 driven by less celebrity fragrance innovation year-over-year and continued tightening of distribution, particularly with our EA brand in Asia.”

He said the company was “accelerating our marketing investment and innovation around the Elizabeth Arden brand that has resulted in year-over-year brand growth in all the major markets with the exception of Greater China,” where the firm has reined in distribution.

The company expects a resumption of growth in China during the second half of its current fiscal year, which began in July.

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