Why Elizabeth Arden (RDEN) Isn't Looking Too Pretty on Friday

NEW YORK (TheStreet) -- Elizabeth Arden (RDEN) shares are in free-fall after warning of a less-than-attractive December quarter.

By late afternoon, shares had plummeted 17.2% to $28.57.

The cosmetics giant said it expects adjusted second-quarter net income for the period ended December between $1.05 and $1.08 a share on revenue in the range of $415 million to $418 million. Analysts surveyed by Yahoo! Finance had previously had consensus of $1.47 a share in net income on $467.79 million in revenue.

"Our second quarter results will be below our prior expectations primarily due to lower than anticipated net sales. Our results were significantly impacted by an increased level of highly promotional and discounted activity globally and weaker-than-anticipated holiday retail sales and replenishment orders at a number of our non-prestige retail accounts in North America," said CEO E. Scott Beattie in a statement.

For fiscal 2014, the company expects sales growth in the 3-5% range and net income between $2.15 to $2.30 a share. The earnings guidance exceeds analyst consensus of $2.14 a share.

The Miramar, Florida-based business is due to release second-quarter results on Feb. 5.

Several of the company's competitors have dipped in sympathy. Revlon (REV) has taken off 3.6% to $23.66 and Avon Products (AVP) shed 2.8% to $16.29. 

TheStreet Ratings team rates ELIZABETH ARDEN INC as a Buy with a ratings score of B-. The team has this to say about their recommendation:

"We rate ELIZABETH ARDEN INC (RDEN) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Net operating cash flow has slightly increased to -$130.66 million or 7.50% when compared to the same quarter last year. Despite an increase in cash flow of 7.50%, ELIZABETH ARDEN INC is still growing at a significantly lower rate than the industry average of 778.69%.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 3.0%. Since the same quarter one year prior, revenues slightly dropped by 0.3%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • RDEN's debt-to-equity ratio of 0.94 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.75 is weak.
  • ELIZABETH ARDEN INC's earnings per share declined by 14.3% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, ELIZABETH ARDEN INC reported lower earnings of $1.33 versus $1.92 in the prior year. This year, the market expects an improvement in earnings ($2.16 versus $1.33).

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