DOW JONES NEWSWIRES
Estee Lauder Cos. (EL) and Elizabeth Arden Inc. (RDEN) posted
lower fiscal second-quarter results, with Lauder unveiling an
ambitious four-year turnaround plan and both companies announcing
job cuts, as consumer spending remains weak following one of the
worst holiday-shopping seasons in decades.
Estee Lauder unveiled a four-year plan that would see it cut
2,000 jobs, or 6% of its work force, over the next two years in an
effort to save up to $550 million in four years. It also aims to
boost non-U.S. sales to more than 60% of overall revenue, with the
Asia-Pacific area expected to lead growth.
As for the here and now, "the current difficult environment,
which is global in scale, is not expected to improve in the near
term," said Estee Lauder Chief Executive William P. Lauder.
The beauty industry - often found to be resilient in bad
economies - is coming under hefty pressure from rising
unemployment, declines in consumer spending and dismal retail
sales. Some observers had expected upscale makeup and skin-care
products to hold their own during the latest downturn, but
consumers who were already buying fewer sweaters and handbags have
finally begun to sacrifice their beauty regimens to the
recession.
Last month, Estee Lauder and Elizabeth Arden cut their sales and
earnings forecasts, indicating they may be suffering more than in
previous recessions.
For the quarter ended Dec. 31, Estee Lauder's net income fell
30% to $158 million, or 80 cents a share, from $224.4 million, or
$1.14 a share, a year earlier. Net sales fell 12% to $2.04 billion,
with half the decline due to the stronger dollar.
Last month, Estee Lauder cut its view to earnings of 75 cents to
82 cents a share on a 6% sales drop in constant-currency terms.
Gross margin rose to 75.1% from 74.9%.
During past economic slowdowns, shoppers perceived a new tube of
lipstick as an affordable indulgence. In the quarter, sales of
Estee Lauder's makeup brands, which include Clinique, MAC and its
namesake line, fell 12%. Sales of skin-care products fell 7.1%.
Looking ahead, Estee Lauder affirmed its lowered fiscal-year
outlook and projected third-quarter earnings of as much as 8 cents
a share. Wall Street expected 13 cents.
Elizabeth Arden only announced "headcount reductions" tied to
consolidating accounting, finance, order-to-cash and customer
service functions ahead of schedule. CEO E. Scott Beattie noted
that the company is "continuing to operate in a difficult economic
environment."
Elizabeth Arden's net income plunged 60% to $13.7 million, or 48
cents a share, from $33.8 million, or $1.15 a share, a year
earlier. Excluding restructuring and other costs related to last
May's deal to license Liz Claiborne Inc. (LIZ) fragrance brands,
earnings fell to 61 cents a share from $1.15.
Net sales dropped 12% to $370 million.
The results were at the high end of last month's warning.
Gross margin fell to 41% from 42.3%. International sales dropped
14% while North American fragrance business sales fell 9.9%.
Estee Lauder shares closed Wednesday at $26.19 while Elizabeth
Arden finished at $6.24. Neither traded premarket.
-By Mike Barris, Dow Jones Newswires; 201-938-5658;
mike.barris@dowjones.com