Why Elizabeth Arden (RDEN) Stock Is Plunging

NEW YORK (TheStreet) -- Shares of Elizabeth Arden Inc.  (RDEN) are down -21.36% to $28.02 in pre-market trade after it was reported that the cosmetics company is evaluating strategic alternatives after posting much weaker-than-expected quarterly results due to falling demand for its perfumes, according to Reuters.

The company said it hired Goldman Sachs (GS) to explore strategic alternatives.

Its third quarter sales declined 20%.

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TheStreet Ratings team rates ELIZABETH ARDEN INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate ELIZABETH ARDEN INC (RDEN) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity."

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

  • The debt-to-equity ratio is somewhat low, currently at 0.63, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.89 is somewhat weak and could be cause for future problems.
  • Net operating cash flow has increased to $145.89 million or 11.90% when compared to the same quarter last year. Despite an increase in cash flow, ELIZABETH ARDEN INC's cash flow growth rate is still lower than the industry average growth rate of 23.34%.
  • 48.32% is the gross profit margin for ELIZABETH ARDEN INC which we consider to be strong. Regardless of RDEN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, RDEN's net profit margin of 8.35% compares favorably to the industry average.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, RDEN has underperformed the S&P 500 Index, declining 22.38% from its price level of one year ago. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to the other companies in the Personal Products industry and the overall market, ELIZABETH ARDEN INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • You can view the full analysis from the report here: RDEN Ratings Report

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