Elizabeth Arden Struggles In Q3 2014 Quarterly Results

Elizabeth Arden, Inc. announced financial results for its third fiscal quarter ended March 31, 2014. The company saw net sales for the third fiscal quarter of $210.8 million, a decrease of 20.3%, or 19.4% excluding the impact of foreign currency rates.

Net sales of the company’s North America segment decreased 23% to $121.9 million from $158.7 million in the prior year. The decline in net sales was primarily due to fewer fragrance launches in the fiscal 2014 period as compared to the prior year and lower replenishment orders at a number of non-prestige retail accounts. Net sales of the company’s international segment decreased 16% to $89 million from $106 million in the prior year. At constant currency rates, net sales decreased 14%. The sales decline in the international segment reflects the company’s efforts to maintain product pricing across both Elizabeth Arden branded products and its key fragrance brands.

Net sales of Elizabeth Arden branded skin care, color and fragrance products declined by 19% for the third fiscal quarter and by 3% fiscal year-to-date, in each case at constant currency rates. Retail sales at the company's Elizabeth Arden flagship counters have increased 11% in North America year-over-year since conversion, and retail sales at the company’s international flagship doors have increased 11% since conversion, or 19% excluding underperforming travel retail doors in Korea. The company remains encouraged by the results, particularly given that all of the flagship doors are now reaching the anniversary of their reset dates.

Net sales for the nine months ended March 31, 2014, were $972.6 million, a decrease of 9.7%, or 9%, excluding the impact of foreign currency rates.

E. Scott Beattie, chairman, president and CEO of Elizabeth Arden, Inc., commented, “Clearly these results are not indicative of the strength and potential of our brand portfolio. We have been hampered this year by weak performance in our North American mass fragrance business and a global environment that has been highly promotional. We also did not have the same level of significant fragrance innovation as we did last year. This coincided with an unprecedented number of weather-related store closures in our North America business during the quarter, which is our seasonally weakest quarter, exacerbating the impact of these other factors and contributing to the weak overall results.”

Beattie continued, “These results are clearly disappointing, particularly after several years of consistent improvement in gross margins and earnings. The status quo is not acceptable. While we are encouraged by recent retail sales performance in our North American mass fragrance business, we must position the company for success in an economic environment that remains challenging. We are taking corrective action to improve the performance of the business, focusing on tightening distribution, improving gross margins and restoring profitability and return on invested capital to levels consistent with historical results.”

As part of this process, the company is proactively implementing a broad restructuring and cost savings program across multiple dimensions focused on reducing its overhead structure and improving gross margins. The company is currently targeting annual savings in the range of $40–50 million upon full implementation of this program. The company is also evaluating a shift in the focus of its international business to rely more heavily on distributors and regional joint ventures that allow its brands to leverage established commercial infrastructures with strong retail market share and expertise. The company will provide more detail on this plan, along with its cost savings initiatives, in August 2014.

Beattie concluded, “We fully recognize that we have a lot of work to do. Our new chief financial officer recently joined us and is now fully engaged. He, along with our new executive vice president [of] international and the rest of our commercial teams are fully committed to making the changes necessary to move us towards more predictable and sustainable profitability.”

Additionally, the company has engaged Goldman, Sachs & Co. to assist its board in exploring potential strategic alternatives to enhance shareholder value and to accelerate the growth and maximize the value of its brand portfolio. There can be no assurance that the company will pursue any strategic alternatives, whether its review will result in any transaction being entered into or consummated or what the form or terms and conditions of any such strategic alternative may be, and the company does not intend to make any additional disclosure unless and until such disclosure is required.

Additional information on Elizabeth Arden, Inc.’s fiscal quarter ended March 31, 2014, can be found here.

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