Hope for Elizabeth Arden turnaround as ‘abysmal’ Q4 results conceal future promise

Hope for Elizabeth Arden turnaround as ‘abysmal’ Q4 results conceal future promise

Elizabeth Arden has reported a 6.2 percent drop in net sales for the fourth quarter of the year ended June 30, 2015 to US$188.7 million on an adjusted basis, contributing to a decline in net sales to the tune of 14.9 percent to US$999.3 million on an adjusted basis for fiscal year 2015.

However, despite dismal sales in North America, where sales dove 13 percent at constant foreign currency rates in Q4, the company is showing signs of improvement as international sales rose 15 percent, thanks to increased skin care and fragrance sales in the Asian domestic and travel retail markets.

E. Scott Beattie, Chairman and Chief Executive Officer at Elizabeth Arden, commented, “This is the second consecutive quarter of sales growth for the Elizabeth Arden brand. The 7 percent constant currency increase this quarter is on top of a 9 percent constant currency increase in the third fiscal quarter. This gives us confidence as we head into the launch of the new Elizabeth Arden brand marketing campaign this fall, which is accompanied by a richer innovation pipeline. Our balance sheet and cash flow metrics also continued to improve, and we finished the fiscal year ahead of plan, resulting in US$54 million in operating cash flow for fiscal 2015. Our performance improvement initiatives continue to drive down costs and improve efficiencies in our business. Indirect overhead savings from our 2014 Performance Improvement Plan and other cost savings initiatives are on track to achieve approximately US$47 million to US$50 million of annualized savings.”

As Nicholas Micallef, Industry Analyst Beauty and Personal Care at Euromonitor, asserts. “Results may look abysmal; however, the reported growth of the Elizabeth Arden brand for the second consecutive quarter spells hope. In FY Q4 the Arden brand grew 7 percent globally, 24 percent internationally with strong gains reported in Asia. The joint venture with the prestige beauty distributor Luxasia in Asia-Pacific will facilitate access to local premium channels and thus help deliver positive results. Essentially, the region ought to be a focal point for a turnaround, especially as the company boasts a range of high-efficacy premium skin care products. Furthermore, the appointment of JuE Wong as President of the Elizabeth Arden brand, who formerly held leadership positions for reputed high-tech skin care brands including StriVectin and Murad, augurs well for elevating the brand’s status in skin care.

“While the company is conducting various initiatives to reverse its situation, for too long the Arden brand lacked sufficient attention, and it really cannot go wrong this time with its business turnaround plan. 

“The company also launched the first fragrance in August 2015 from fashion designer label Wildfox Couture which is an iconic American brand that resonates well with American consumers. This could see a gradual shift from its reliance on celebrity brands, which unsurprisingly, continued sinking as these fell victim to more intense price competition and retailers’ streamlining of shelf space in favour of brands delivering stronger margins. The situation was compounded by adverse performance of mass-aligned fragrances (forecast to shrink by US$160 million over 2014-2019 in North America) amid increasing polarisation between premium and mass fragrances.” 

The company remains positive, predicting an increase in net sales for fiscal 2016 driven by the international business and Elizabeth Arden brand, gross margin expansion and improved EBIDTA margins.