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Why Elizabeth Arden Was Down After-Hours

Why Elizabeth Arden Was Down After-Hours
By: Nancy Kross
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Elizabeth Arden, Inc. (RDEN) plunged 16% in after-hours trading yesterday as the company posted unanticipated losses and lower-than-expected sales for the third quarter of its 2014 fiscal year (3QFY14; ended March 31, 2014). The management's decision to seek assistance from Goldman Sachs Group (GS) on plans to restructure also contributed to the decline in the stock price.

The branded fragrance company posted a 20% decline in revenues for the three-month period, due to a slump in demand for its products in the low-end merchandize channel. The company recorded revenues of $210.8 million during the quarter, compared to consensus estimates of $256.9 million. Scott Beattie, the Chief Executive Officer of the company, admitted that results for the quarter were disappointing, and that the status quo was unacceptable.

Sales in North America contributed 58% of total revenues for the quarter, and declined 23% as the company launched fewer fragrances during the period compared to last year. Harsh weather in the first two months of the quarter also aggravated the situation, forcing unexpected store closures.

Beattie commented on the poor performance in the period ended March 31: “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.”

The prestige cosmetics company that has a presence in 120 countries saw international sales drop 16%. The management said it strategically reduced its shipments in overseas markets to avoid giving out discounts by controlling the supply of its merchandize in an extremely competitive environment.

Elizabeth Arden, which recorded a decline across all segments, posted a loss of $96.4 million (or $0.89 a share), while analysts were expecting the company to break even. Excluding one-time charges, the company recorded a loss of $0.84 a share. The gross margin shrunk 520 basis points to 42.5% during the quarter.

Unexpected losses announced yesterday offset gains that the company’s stock had seen since LG Household & Health Care alluded last month that it was considering acquiring Elizabeth Arden to expand its portfolio. Without making any reference to the news on the potential bid, Elizabeth Arden’s management said it had contacted Goldman Sachs to assist the company in exploring strategic options. However, the cosmetics company said that its cost-saving plans, which are already being implemented, will lead to annual savings of $40-50 million on completion.

The share price is currently down over 20% pre-market.

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