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Bieber and Swift fragrances weakness cited for Elizabeth Arden woes as losses grow, Rhône Capital buys 7.6% share

Weakening demand for celebrity fragrances from stars such as Justin Bieber and Taylor Swift was partly blamed for Elizabeth Arden’s widening losses in Q2. The beauty giant saw its shares plummet 24% to $14.95 in early Tuesday afternoon trading to reach a new four-year low. Its stock has dropped 58% so far this year. The company reported a loss of $155.9m/$5.24 a share, compared with a year-earlier loss of $5m/17 cents a share.

Excluding nonrecurring costs, Elizabeth Arden reported a loss of $1.04 a share, compared with a year-earlier profit of 10 cents a share. Analysts had forecast a loss of 34 cents a share.

Arden admitted it was the worst quarterly loss since at least 1996 and chief executive Scott Beattie said it will do what it takes to restore profitability.

On Tuesday, the company sold 7.6% of the business to Rhône Capital for nearly $100m as the private equity firm agreed to buy $50m in preferred stock and receive warrants to acquire 2.5m shares of common stock at $20.39 each. Rhône, which will also gain a seat on the board, also intends to increase its ownership over time, Elizabeth Arden said.

Arden said that revenues tumbled by more than 28%, its steepest decline in a decade, as retailers cut their orders faster than expected for fragrances linked to Bieber and Swift. There were also declines in demand for those by Britney Spears, Jennifer Aniston, Mariah Carey and Nicki Minaj.

Sales for the three-month period dropped to $191.7m, short of the $242m analysts had expected, and were also hurt as the company tightened distribution of its products globally to improve pricing and gross margins.

By segment, North America and International currency neutral sales declined 14% and 8%, respectively. Retail sales at Elizabeth Arden flagship counters increased 9% in North America while international flagship door sales increased 8%, or by 16% excluding underperforming travel retail doors in Korea.

Total operating expenses rose to $135.36m from $123.82m in the previous year.

For fiscal 2014, the company posted a net loss of $145.73m/$4.90 per share, compared to a profit of $40.71m/$1.33 per share in the prior fiscal year. On an adjusted basis, net loss per share was $0.55, while the firm posted net earnings of $2.14 per share a year earlier.

Net sales for the year fell 13.4% to $1.16bn. Excluding the impact of foreign currency rates, sales were down 12.8%.

“I am very excited to have Rhône Capital as an equity partner, to support the turnaround of our business in the short term and the continued global growth and development of our brands and organization in the future,” said Beattie.

Arden said it will focus in the current fiscal year on stabilising its business as part of a multi-year plan to return to profitability. It expects a “modest improvement” in adjusted earnings, though the first half of the year will still include headwinds to sales from less product innovation.

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