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Thursday, January 22, 2009

Consumers Scrimp on Beauty Items

As posted by: Wall Street Journal

Elizabeth Arden Inc. and Estée Lauder Cos. cut their sales and earnings forecasts Friday and watched their stocks take a beating, as consumers -- already buying fewer sweaters and handbags -- begin to sacrifice their beauty regimens to the recession.

"The unprecedented global economic crisis produced one of the worst holiday seasons in decades," Estée Lauder Chief Executive William Lauder said. "Our business was no exception to the downturn in consumer spending."

Although a mounting number of high-end brands, from Tiffany jewelry to Coach handbags, have recently reported disappointing holiday sales and issued pessimistic outlooks, some beauty-industry observers expected upscale makeup and skin-care products to hold their own, thinking consumers would resist scrimping on their appearance.

Whether shoppers are trading high-end department-store beauty products for lower-priced drug-store options or forgoing purchases altogether will be clearer next week, when mass-market beauty giants including Procter & Gamble Co., which makes Olay skin cream and CoverGirl cosmetics, and Alberto-Culver Co., owner of Tresemmé shampoo and St. Ives skin care, report earnings.

"Beauty is still holding up better than other categories, but nothing is recession-proof," says Bill Chappell, a SunTrust Robinson Humphrey analyst. "Instead of buying their fifth and sixth tubes of lipstick, [consumers are] going to work down what's already in their pocketbook."

Estée Lauder, whose Clinique, MAC and namesake line dominate the beauty counters of U.S. department stores, expects sales for its fiscal second quarter, ended Dec. 31, to fall about 6% from a year earlier, down sharply from the 2% to 3% revenue gains previously forecast. Quarterly earnings per share are expected to range from 75 cents to 82 cents, the New York company said, down from its previous guidance of 97 cents to $1.05.

Warning of difficult sales trends in North America as well as in its foreign markets, Estée Lauder downgraded already-lowered expectations for the rest of its fiscal year, ending June 30. The company now expects earnings per share of $1.30 to $1.60, down from the lowered full-year guidance of $2.20 to $2.50 issued in October. Full-year sales are expected to be flat to down 3% from a year earlier, lower than its previous guidance of 3% to 5% sales gains.

The dismal outlook sent Estée Lauder's share price down $2.92, or 10%, to $26.11 Friday on the New York Stock Exchange. Elizabeth Arden's shares plunged 39%, or $4.50, to $7.06 on the Nasdaq Stock Market. The news sent other beauty companies' share prices down, too. L'Oréal SA shares fell 6% to €53.81 ($70.78), Avon Products Inc. shares fell 8% to $20.25 and Revlon Inc. fell 3% to $6.21. U.S. stock markets were closed Monday for a holiday.

Elizabeth Arden, best known for its fragrances under its namesake, Elizabeth Taylor and Britney Spears brands, expects sales for the quarter ended Dec. 31 to fall 12.5% to 13.5% from a year earlier, while earnings per share for the period are expected to range between 57 cents and 61 cents. Earnings per share for its fiscal year ending June 30 are expected to range from 71 cents to 84 cents, on sales down 4% to 5%.