QUOTE AND NEWS
Wall Street Journal  Oct 30  Comment 
Elizabeth Arden swung to a loss in the September quarter as revenue declined sharply on weakness in the fragrance segment.
SeekingAlpha  Oct 14  Comment 
By Zacks Investment Research: Weak consumer demand and highly promotional retail environment has been posing headwinds for retailers in general. Some of these stocks still look very weak despite significant pull back recently. Elizabeth Arden...
SeekingAlpha  Oct 2  Comment 
By Nitin Gulati: As developing economies were catching up rapidly with their western counterparts, it was no surprise these regions emerged as key strategic interests to the multinational beauty and cosmetic companies. Companies sought...
StreetInsider.com  Aug 29  Comment 
The following is a list of notable articles to help get you through the lunch hour: Apple (AAPL) Wearable May Not Ship Until Early 2015 -> Read this! Options Abound for Syngenta (SYT) as Monsanto (MON) Deal Doesn't Pan Out (DOW) (DD) -> Read...
Wall Street Journal  Aug 27  Comment 
Elizabeth Arden Inc. said that investment funds affiliated with Rhone Capital have commenced a partial tender offer to acquire up to 20% of the company's shares.
SeekingAlpha  Aug 26  Comment 
By Jeremy Raper: Readers of my first article on Elizabeth Arden (NASDAQ:RDEN) will know that I have been bearish on the New York-based beauty company ever since their purported white knight, the Korean company LG Household, walked away from making...
SeekingAlpha  Aug 20  Comment 
By Kevin Donovan: The banished duke in "As You Like It" has this to say of his exile in the Forest of Arden: Sweet are the uses of adversity; Which, like the toad, ugly and venomous, Wears yet a precious jewel in his...




 
TOP CONTRIBUTORS

Elizabeth Arden is an international beauty company with a variety of product lines in prestige fragrances, cosmetics and skin care. The product is sold in over 100 countries world-wide featuring designer and celebrity product brands as well as their own.

Image:ElizabethArden.jpg

Business Overview

Miss Elizabeth Arden established the American beauty industry a century ago. Born Florence Nightingale Graham,she opened the first Red Door salon on Fifth Avenue in 1910. Elizabeth Arden’s list of beauty innovations is long. She was the first to introduce eye makeup to the women of America and pioneered the creation of the “makeover." The company become the first to incorporate it's name into their products with their launch of Arden Skin Tonic. Miss Arden had also developed the first travel-size beauty products, and was the first in the cosmetics industry to train and send out a team of traveling demonstrators and saleswomen. She lived by her mantra, "To be beautiful and natural is the birthright of every woman."

Marketing

Place

In the United States Arden sells their cosmetics and skin cares lines in their prestige department stores while their fragrances are sold in department stores like Sak’s, Bloomingdales and Nordstrom’s; as well as mass retailers across the country such as Kohl’s, Target and Wal-mart. Internationally Elizabeth Arden is sold in over 100 countries through perfumeries, boutiques, duty-free stores, and traveling retail.

The following is a map of their Red Door Spa locations in the United States.

Product Portfolio

  • Skin Care

Arden's skin care line provides 17% of the sales revenue from '08-'10. PREVAGE is Arden's premium anti-aging skin care line which is a licensed trademark brand.The PREVAGE license has been renewed through December 2015 and is renewable for unlimited five-year terms if certain sales targets are achieved. In 2010, net sales of this product increased by over 28% from previous years. The line has everything from creams to serums along with a daily moisturizer to tie in everything together. They have also begun linking their color lines from their cosmetics with their lotions and adding spfs for the extra safe glow women are now looking for to keep them looking ageless while adding that sun kissed look. All of their products are used at the famous Red Door Salon and Spa located at 31 locations across the United States. Red Door is a part of the Elizabeth Arden company and also has their own line of skin care products and fragrances.

  • Cosmetics

Cosmetics is their least profitable product line bringing in only 6% of sales revenue for the years '08-'10. They offer foundations, lipsticks, mascaras, eye shadows and powders in a variety of shades and colors all under the Elizabeth Arden name. Their most successful product is their foundations which they market in conjunction with some of their skin care products like Intervene. The cosmetics line is sold in their Prestige stores international, department stores and speciality boutiques.

  • Fragrances

The fragrance product line accounts for about 77% of Elizabeth Arden's sales revenue from '08 to '10, making it their most profitable line. Arden has been focusing on their fragrance line especially when it comes to expanding their business into the European and other emerging markets such as Asia and South America. They only have a couple brand names that they believed would boost sales overseas in the large European fragrance market such as Juicy Couture, Alberta Feretti and Halston. They did not have the sales capabilities to take advantage of all the opportunities such a large fragrance market provided so they had to focus on key fragrances and retailers in order to take advantage of what sales they could while building momentum and recognition overseas. They hired a new Executive Vice President and General Manager of their International division which the company believes will be successful in implementing Arden's fragrances as a larger competitor in Europe and emerging markets.

Some of their recognizable brand names in fragrances include; Designer – Elizabeth Arden, Kate Spade, Juicy, Rocawear, and Badgley Mischka Celebrity – Elizabeth Taylor, Britney Spears, Mariah Carey,Hilary Duff, and Usher

Many of their fragrances are world wide trademark licensed brands like their Elizabeth Taylor line which they have exclusivity until October 2022 and then have the sole right to renew it in 20 year increments. The company also has a similar deal with Britney Spears and her fragrances which expires in 2014. The license agreement with Liz Claiborne Inc. and Juicy Couture fragrances expires in December 2017, and is renewable for two more five-year terms, if certain sales targets are continued to be met. The other license agreements have terms with expirations ranging from 2010 to 2045 and beyond, and,usually, have renewal terms that are dependent on sales targets being achieved.

Price

Elizabeth Arden sells their products both through their departments stores, third party suppliers, other department retailers, and through duty-free type stores in the airports. The price sold depends on a number of things like what product is being sold, whether it is an Arden brand name product or one of their licensed products in which they need to meet sales targets and pay royalty fees. Whether or not they will be sold in their stores or through a third party supplier in which case the third party supplier might have rights to what the price will be set in stores depending on who it is. Arden has to keep that price in mind while setting their own prices to keep everything on relatively the same level so consumers will not buy from the third party supplier which may be the only supplier in their area knowing that the same product is sold for say $20 less through Arden directly.

Financial Overview

RDEN has been slower in quarterly profit growth than not only their competitors but slower than the industry average growth overall by 5.5%-6%, as seen in the direct competitor comparison chart. Although they have been able to have a higher overall revenue than the industry average. The industry is continuing to pick up at a fast rate while Arden may get left behind. They have had an increase in their cash conversion cycle over from 05'-09' but in 10' was able to reduce their CCC by over 20 days on average. Most companies have been putting a lot of time into keeping these numbers consistently low and putting time into trying to decrease the days on average each year while Arden had watched their numbers go up for several years before deciding there was a problem. Low CCC are a good thing for companies, especially in an unstable economy. Both RDEN's ROE and ROIC have decreased from the years 05'-10' and there was even a year where both negative, 06'-09'. The ROE and ROIC reflect the money that is going into the company and the return investors and the company are in return getting out of that investment each year.

Image:RDEN_Profit_11'_KP.jpg Image:RDEN_Efficiency_11'_KP.jpg‎

Trends and Future Strategies

The global fragrance industry has a market cap at $36.6 billion dollars. Currently Elizabeth Arden has a 15% market share from their owned and licensed brands North America compared to the 2% market share in Europe. Europe has largest fragrance market at $13 billion which is currently twice that of North America. Arden sees this as a great growth opportunity for them.

Competitor's

Elizabeth Arden is able to compete in this industry with their brand recognition, quality, product variety, price, and emphasis on being able to provide value-added customer services. But the beauty industry is a highly competitive and fast changing industry based on consumer preference that can change on a whim. Direct competitors to Elizabeth Arden include L'Oreal SA, Estee Lauder Companies (EL), Revlon (REV), Avon Products (AVP), and Alberto-Culver Company (ACV) .

Elizabeth Arden’s competitors have higher brand name recognition. EL has name brands, besides Estee Lauder, like Michael Kors, Coach, Bobbi Brown, MAC, Clinque and the list continues to go on. They also have greater financial and marketing capabilities. As seen in the following graph Estee Lauder has over 18 times the market capital than that of the industry average. They have also been growing internationally since 2006 when their sales were 51% international and 49% from the US in 2010 EL Companies have grown to over 67% of there sales have been international. They have been taking the international market shares and advantage of the larger markets and financial opportunities overseas with the resources they have and been expanding at a fast rate. Estee Lauder has been able to see the opportunities overseas earlier than Elizabeth Arden who is just starting to really expand internationally now and been rewarded well for it.

Image:Competitor_Analysis_RDEN_11'.jpgImage:Direct_Comp._Comparison_RDEN_11_KP.jpg

Business Analysis

Strength

Elizabeth Arden is working on the strength of their licensing deals with their world wide trademark brand name fragrances and their PREVAGE line of skincare; having the brand names of celebrities and designers working for them is free marketing and advertising along with loyal consumers that comes with some of the fans of those celebrities and designers.

Weakness

Arden is not the largest company by any means and believes they are limited to what they can do by their current size and limited resources in comparison to some of their strong direct competitors even though they are on par with industry average. The company is not able to quickly move into the new expanding markets and grab hold of that first or second large market share as fast as they would like to due to this size constraint and sees this as lost opportunities and lost money every time they are not able to expand.

Opportunity

Elizabeth Arden has an opportunity to expand into Europe, the largest fragrance market in the world, with a potential market size of $13 billion. They already have a presence in that market with brands such as Juicy and Halston as mentioned in the their product line, but lack the resources and sales force to bring about any sustainable revenue or market share in such a large profit so they hired on a new International Executive VP hoping to take advantage of this opportunity. Arden wants to focus on specific key fragrances such as Juicy, Britney Spears and John Varvatos that they believe resonate well with the Western European market in which they are hoping to gain market share.

Threat

Other competitors, especially their main competitor Estee Lauder, have a greater amount of resources on hand as seen in figure_. They have more recognizable name brands and the ability to grab hold of larger market shares in emerging markets and especially in Europe. Elizabeth Arden is an international company and fluctuations in foreign exchange rates could negatively affect results of operations and cash flows in their statements. Another threat is something that faces the entire economy but is still relevant none the less like any reduction in consumer traffic and demand as a result of economic downturns like the recent domestic and global recessions and any credit risks associated with the financial condition of our customers can effect the operation and financial results of the company.

Industry Analysis

Barriers to Entry

While it does not require a lot of capital in order to enter into the personal consumer product/beauty industry the competition new entrants could face are steep and market shares are split between a few very larger companies with not many small companies that have been able to make a name for themselves. A new entrant could also face making sure they are keeping up with governmental regulations in their creating of new products.

Power of Buyers

Buyers have a lot of power in this industry. There are no switching costs from going to one beauty company to another. There are a lot similarities between companies when it comes down to it the consumer has the power and the companies are trying to win them over any way they can. Buyers can control prices because the companies are at the whim of the consumers with exception of one or two "state of the art" anti-aging creams that may not be found through any other company yet. There are a handful of companies to chose from as well so consumers are not stuck with one company one price.

Power of Suppliers

Suppliers have very little power though Elizabeth Arden has been trying to keep the number of suppliers and manufactures they use to minimum there are many across the globe. The beauty industry has an upper hand in being able to pick and chose their manufacturers and not the other way around which helps with being able to bargain with prices, quality etc.

Competitive Rivalry within the Industry

The beauty/personal consumer product industry is highly competitive. The industry is based on fashions and fads if a company can predict the correct fad and be able to get an upper hand on these fads more than just once they are able to gain market shares quickly just as another company would lose theirs if they do not continue to keep up and think they can rely on consumer loyalty.

Threat of Substitute

There are no real threat of substitutes for this industry. Hand cream is hand cream and it has not changed in years as well as perfume. There could be a threat for substitute in the skin care line in the anti-aging department if surgical methods of rejuvenating ones skin or age become less painful, have quicker recovery times and are cheaper then people will become more likely in the future to skimp out on the $150 4 oz bottles of anti-wrinkle serum and opt for a for sure one time quick fix surgery.

References

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