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A foul mass market smell at Elizabeth Arden

Global fragrance leader Elizabeth Arden cited curtailed orders at a mass market customer as a factor in its weaker-than-expected full year financial results, and the finger was quickly pointed at Walmart.

Elizabeth Arden said sales on a constant currency basis in its fourth quarter and fiscal year ended June 30 increased 1.2% to $268 million and 9.6% to $1.35 billion, respectively. However, even when adjusted to exclude non-recurring expenses, the company posted a per share loss of 10 cents a share, compared to a prior year profit of 28 cents. For the full year, earnings per share were $2.14 compared to $2.07.

Those results were less than the company expected and Scott Beattie, Elizabeth Arden’s chairman, president and CEO, said there were two primary factors.

“The first was due to weakness at one of our largest North American mass retail customers, both in terms of retail sales performance and replenishment rate,” Beattie said. “The second factor was that our growth projections for the Elizabeth Arden brand proved to be overly optimistic given the complexity and scope of transition underway for the brand repositioning.”

Reference to one of the company’s largest mass retail customers prompted speculation that the retailer in question was Walmart. However, Beatttie was careful to distinguish between “one of” and “the” company’s largest customers. Walmart is certainly the latter and last year accounted for 13% of Elizabeth Arden’s total sales of roughly $1.24 billion. Walmart accounted for an even larger percentage of Elizabeth Arden’s business when looking only at the $778 million North American division where Walmart accounted for 20% of sales, or $155 million.

It was unclear whether curtailed orders at another of the company’s largest customers other than Walmart would have been capable of moving the needle on sales and profits to the extent it did during the fourth quarter when the situation was most pronounced. According to Elizabeth Arden, its unidentified key North American mass retail customers reduced their inventory on hand below the pace of retail sales, and the replenishment rate at account worsened significantly in the month of June, according to Beattie.

That situation, coupled with weak performance in Europe, particularly in the United Kingdom, were the primary reasons why the company fell short of fourth quarter and full year earnings expectations communicated in May.

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