Preliminary results for the second quarter ending December 31, 2008, suggest a fall of 12.5 - 13.5 percent in sales, or 9-10 percent if excluding the unfavorable currency effects, compared to the same period last year.
Excluding restructuring expenses and those relating to the acquisition of Liz Claiborne brands the company is expecting net income of $0.57 – $0.61 per diluted share, or $0.72 – $0.75 excluding currency effects.
Department stores and travel retail fragile
Weak department store sales and a shaky travel retail sector were among the factors to drag results down, according to the company.
“The performance of our US Elizabeth Arden prestige department store business was much weaker than we had anticipated, though consistent with overall trends experienced in this category,” said CEO E. Scott Beattie.
International results were weakened by troubles in the higher margin travel retail and distributor markets, he added.
North America’s fragrance sector met with slightly more success, although results were impacted by the company’s moves to limit credit risk by decreasing shipments to risky customers and lower replenishment orders from mass retailers.
“Despite the weak environment, we maintained operating profit and improved margins for our North America fragrance business as a whole for the first half of this fiscal year as compared to the prior year,” said Beattie.
Drop in expectations and plummeting shares
As a result of these preliminary results (full figures are to be released February 5) the company has dropped its expectations for the fiscal year ending June 2009.
A decline in net sales of 4 – 5 percent (1 – 2 percent excluding expected unfavourable currency effects) is expected, translating to expected earnings per diluted share of between $0.71 and $0.84.
The altered expectations led Elizabeth Arden shares to lose 39 percent of their value on the Nasdaq Stock Market reaching a low of $7.06 at the close of trading January 16.
According to the Associated Press, this share price is a nine year low.
Elizabeth Arden is not alone in its struggle as fellow luxury manufacturer Estee Lauder also cut expectations last week.
For the full fiscal year 2009, the company expects that net sales will either remain flat or fall by as much 3 percent, compared to previous statements that estimated sales growth of 5 – 7 percent growth.
Similarly, Estee Lauder shares fell in response to the news, although at the close of trading on Friday 16 prices were down only 2.92 percent.