Elizabeth Arden, Inc. (RDEN)

Smell a rat on Elizabeth Arden. It is an US based beauty products company engaged in the manufacturing and marketing of fragrances, skin care products and cosmetic products worldwide. In addition to over 100 owned and licensed prestige brands, the company also distributes over 200 additional prestige fragrance brands principally to mass retailers in the United States. Fragrances contribute around 75% of the sales followed by skincare and cosmetics.

The life cycle of fragrances has shortened dramatically in recent years. Loyalty towards the brand is declining and more and more customers are experimenting with different brands within a short span. Hence, companies are launching new products at a very faster rate to meet the market demand. To face the industry challenges, Elizabeth Arden has been incurring huge marketing spends and undergoing promotional activities, which is finally grinding down the bottom lines of the company. The company did generate about 12% rise in revenues in the first quarter of fiscal 2007 driven by sale of new brands and acquisitions of Riviera and Sovereign. However, revenues are rising at the cost of spiraling expenses. In the past two quarters, the company financials has gone in the red and costs are likely to rise ahead on account of marketing expenses and acquisition related integration costs.

Conversely, management is upbeat on their ‘Prevage’ skin care line as demand for anti-aging products is rising. However on the negative side, revenues could take a hit due to Wal-Mart’s shift in the product mix, as Elizabeth Arden currently derives significant revenues from Wal-Mart. Also, it is expecting the benefit of acquisitions to materialize later in 2008. Considering these facts, the scrip does not look an exciting investment from one-year perspective.