Elizabeth Arden blames celebrity perfume brands for steep profit dropTuesday 19 August 2014 18.56
Elizabeth Arden has reported its biggest ever quarterly loss due to a steep fall in sales of celebrity perfumes, particularly the Justin Bieber and Taylor Swift brands, sending its shares plunging by 25%.
The company said fourth-quarter sales fell 28.4%, the steepest in a decade, and warned that the weakness, which started about a year back, would continue for the next six months.
Still, investment firm Rhone Capital LLC agreed to invest nearly $100m in Elizabeth Arden through preferred stock and warrants.
The company's net sales in fiscal 2014 were hit by fewer launches of perfumes, retailers reducing inventory, heavier discounting and a decision to prune the distribution of its key brands, CFO Rod Little said on a conference call.
While teens and young adults still like celebrity-branded perfumes, they have less disposable income to spend on such discretionary items given the high unemployment among youth, according to market research firm Euromonitor International.
Elizabeth Arden had five of the top ten celebrity perfumes in the United States last year, but the overall market for these perfumes is shrinking, according to Euromonitor.
This has had a bigger impact on Elizabeth Arden, which gets about 75% of its sales from perfumes, than on rivals such as Estee Lauder Cos, L'Oreal and Coty, who rely more on sales of cosmetics.
Elizabeth Arden's total sales fell 13.4% in the year ended 30 June, with the fall increasing each quarter.
About half the 14% decline in its North American sales was due to celebrity perfumes.
Distributors and retailers were selling the company's products for too little, CEO Scott Beattie said.
The result caps a year in which Elizabeth Arden saw a potential suitor walk away, launched a restructuring programme, and started exploring alternatives to prop up its business.
The review process ended today with Rhone Capital's investment of $50m in preferred stock and 2.5 million through warrants in exchange for a board seat and a stake of about 7.6% in the company.
Rhone agreed to cap its stake at 30% after the exercise of the warrants, which are worth about $49m based on the stock's close yesterday.
"Rhone's investment might support the shares in what would otherwise be a painful day," BMO Capital Markets' Patrick Trucchio said in a note.
While Elizabeth Arden said it expects sales to increase in the second half of fiscal 2015 as comparisons ease and pricing improves, Mr Trucchio believes it would take years for the company to return to "historical levels of profitability".
Net loss attributable to Elizabeth Arden widened to $155.9m in the quarter from $5m a year earlier.
Net sales fell to $191.7m.
The stock was trading down 24% at $14.93 in afternoon trading, making it the top percentage loser on the Nasdaq.