Elizabeth Arden posts biggest ever loss
Fin24 - Aug 20th 2014, 10:22
London - Elizabeth Arden reported its biggest quarterly loss due to a steeper-than-expected fall in sales of celebrity perfumes, particularly the Justin Bieber and Taylor Swift brands, sending its shares plunging as much as 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.
Net sales in fiscal 2014 were hit by fewer launches of perfumes, retailers reducing inventory, heavier discounting and the company's decision to prune the distribution of key brands, Chief financial officer, Rod Little, said on a conference call. Perfumes accounted for 78% of total sales in fiscal 2013.
Sales decreased 13.4% in fiscal 2014, driven by a 14% fall in North America, which accounts for half on the company's business. The fall in celebrity perfume sales account for about half of the decline in the region.
The result caps a year in which Elizabeth Arden saw a potential suitor walk away, launched a restructuring program involving job cuts to revive sales growth, and started exploring alternatives to prop up its business.
That process ended on Tuesday with investment firm Rhone Capital LLC agreeing to pump in nearly $100m in preferred stock and warrants in exchange for a board seat and a stake of about 7.6% in the company.
"For now, it seems an outright sale of the company isn't possible; Rhone's investment might support the shares in what would otherwise be a painful day," BMO Capital Markets analyst Patrick Trucchio wrote in a research note.
Elizabeth Arden, which also sells cosmetics and skincare products, has cut 175 jobs, reduced costs, exited a "major customer" in Canada, closed its Puerto Rico affiliate, and tightened distribution in an effort to turn its fortunes around.
"Over the past six months we have taken dramatic action to reduce sales to distributors and retailers that are ultimately selling our products at too low a price in the market," chief executive Scott Beattie said on the call.
Elizabeth Arden said in June that it would exit low-return brands as part of a broader restructuring plan, a move that led to South Korea's LG Household & Health Care backing away from plans to buy the company.
"While RDEN still expects savings of $40-$50m from its savings initiatives, we think it will take years for it to return to historical levels of profitability," Trucchio wrote.
Still, Rhone Capital LLC agreed to invest $50m though redeemable preferred stock. The investment firm will also get warrants to buy 2.5 million shares, representing about 7.6 percent of the outstanding stock. The shares are worth about $49m based on the stock's Monday close of $19.61.
The firm will also get one seat on the company's seven-member board, and agreed to cap its stake at 30 percent, after the exercise of the warrants.
The net loss attributable to Elizabeth Arden widened to $155.9m in the fourth quarter from $5.0m a year earlier. Net sales fell to $191.7m from $267.6m.
The stock was trading down 25% at $14.73 in morning trading, making it the top percentage loser on the Nasdaq. From Fin24.com
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