If Ralph Waldo Emerson was right when he said that "The creation of beauty is
art," then it seems fair to suggest that Elizabeth Arden (NASDAQ: RDEN ) is
vying to turn its celebrity fragrance, elite skin care and luxury spa brand into
a modern-day masterpiece. That will be a tough task, to be sure, but the
company's fourth-quarter earnings, released last Thursday, were awfully
pretty. RDEN reported earnings of $5.4 million (18 cents per share), compared to
$2.3 million (8 cents per share) for the same quarter in 2010. That blew away
analysts' estimates of 10 cents for the quarter. The company also reported net
sales of $253.8 million, up 11.2% from the same quarter last year. One big
reason for the company's strong results: cost discipline and
technology-related efficiency. Elizabeth Arden has focused on outsourcing
business functions, such as packaging, while streamlining global transaction
processing functions. RDEN also acquired the trademarks for several Liz
Claiborne fragrance brands. The company believes it can accelerate the growth of
those brands, particularly internationally. While some 65% of RDEN's sales
come from North America, the company is aggressively targeting global markets
particularly in Asia and Western Europe, which each have $45 billion beauty
product markets. The company's "Red Door"-branded spas, which are operated
by a third party, remain a strong distribution channel and brand awareness tool
for RDEN's skin care, cosmetics and fragrance lines. Elizabeth Arden's
e-commerce channel also is a source of revenue growth. Now trading at about
$31.50, RDEN set a new 52-week high of $34.62 on July 21. It also is trading
more than 93% above its 52-week low, set last August, of $15.79. With a market
cap of $859.90 million, the company has a price/earnings-to-growth ratio of
1.37, meaning the stock might be slightly overvalued. The 9.9% return on equity
is a little lower, and the leverage position (total cash of $33.82 million vs.
total debt of $258.1 million) is a little higher than we'd like. That said,
the fundamentals still are attractive. Bottom Line: It's hard to be beautiful
and it's even harder to be in the business of making women beautiful in the
middle of a topsy-turvy economy. When the economy tanked back in late 2008 and
2009, so did earnings of companies like Elizabeth Arden, Estee Lauder (NYSE: EL
), Avon (NYSE: AVP ) and Revlon (NYSE: REV ). As a result, earnings and stock
prices in this sector like most others would be vulnerable to a contracting
economy. While the economy still is too weak to send the average shopper
scrambling for a $1,200 Fendi baguette bag, budget-conscious beauties still can
pamper themselves with a spritz of Peace Love & Juicy Couture. And thats what
gives Elizabeth Arden an edge. Indeed, most of the company's revenue comes
from that prestige fragrance business, particularly celebrity brands like
Elizabeth Taylor's White Diamonds. So if the economy stays on track, RDEN
shares should continue to be a sweet-smelling part of your portfolio. As of this
writing, Susan J. Aluise did not hold a position in any of the stocks named
here.
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