Oct 30, 2014
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Elizabeth Arden posts another loss as perfumes lose charm

Oct 30, 2014

Beauty products maker Elizabeth Arden posted its third straight quarterly loss, largely due to its large exposure to perfumes, a category that has seen weak demand in North America.

Elizabeth Arden's shares fell as much as 8.2 percent to a four-year low in morning trading, but reversed course to trade up 4.4 percent in the afternoon session.

Elizabteth Arden ad for its Red Door perfume | Source: Elizabeth Arden

"They have made aggressive actions to cut their costs and based on extremely small time frame, those actions are beginning to show some traction," CJS Securities analyst Arnold Ursaner told Reuters.

Elizabeth Arden had announced an annual cost saving target of $40-$50 million and the company said it had made significant overhead cost reduction during the first quarter ended Sept. 30.

Sales of perfumes, which contribute nearly two-thirds to overall revenue, fell nearly 24 percent in the quarter, as retailers failed to clear their stocks and the company tightened distribution to improve pricing and gross margins.

Within the perfumes category, celebrity perfumes, which include Justin Bieber and Taylor Swift, fared poorly, hurting Elizabeth Arden's sales.

Research firm Euromonitor said in a report earlier this year that young Americans have less disposable income to spend on discretionary items such as fragrances post-recession as unemployment remains high.

Online competition and intense promotional and discounting activity in the United States and Europe have weighed on Elizabeth Arden's margins. 

Larger rival Coty said in August that North America sales fell 11 percent, citing market contraction, de-stocking and increased promotional and competitive pressure, mainly at mass retailers.

Companies such as Estee Lauder and L'Oreal have on the other hand managed to offset the slowdown by having a diverse skin and haircare product lines.

Estee Lauder's sales jumped 13.2 percent in the last quarter, helped by strong demand for products such as Clinique Dramatically Different Moisturizing Lotion and Estee Lauder Pure Color Envy Sculpting Lipstick.

Avon Products Inc also on Thursday reported an 8.6 percent drop in third-quarter revenue, hurt by weak demand in North America and Latin America. Avon's shares fell as much as 11 percent to an 18-year low of $9.77 in afternoon trading.

The direct-selling company has reported eight straight quarters of operating losses in North America and has been losing share in the beauty category to other retail channels such as online.

"Cosmetics already have massive penetration in direct selling, so the demand migrating to other retail channels, particularly drugstores and specialized stores, as well as online is a fact of life in our view," J.P. Morgan Securities analyst Andrea Teixeira said in a note to clients.

Avon has said it expects North America business to return to profitability in 2015.

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