Cosmetics Companies Down The Recession Drain (EL, RDEN, AVP, BARE, REV)

Husbands have long joked that certain segments in their households, such as cosmetics and personal beauty care products, were largely immune from recessions.  Many will still joke about this, but the numbers reported by Estee Lauder Companies Inc.(NYSE: EL) and Elizabeth Arden, Inc. (NASDAQ: RDEN) show this is not quite the case.  The good news is that they are at least still very profitable.  Both companies cut their earnings forecast and this is taking its toll on other major players in the sector today.  Avon Products Inc. (NYSE: AVP), Bare Escentuals, Inc. (NASDAQ: BARE), and Revlon Inc. (NYSE: REV) are all trading as though they are next in line to join the warnings parade.

Estee Lauder (NYSE: EL) lowered its fiscal-Q2 and Fiscal-2009 net salesand net earnings projections.  The company sees Q2 EPS of $0.75 to$0.82 versus $0.99 consensus estimates on roughly a 6% year- -over-yearconstant currency revenue basis. The company now sees earnings at $1.30 to$1.60 in fiiscal 2009 EPS rather than a prior range of $2.20 to $2.50. Consensus estimates are for earnings of $2.23.  The company noted that thedeteriorated global economic conditions during the quarter were wellbeyond its own expectations and the holiday shopping season was worsethan anticipated.  It now expects further uncertainty about futuremarket conditions and consumer spending patterns.  Foreign currencytranslation is expected to negatively impact net sales by 5% to 7%versus the prior year.  Estee Lauder shares are down almost 15% at$24.73, and its 52-week trading range is $24.24 to $54.75.

Elizabeth Arden (NASDAQ: RDEN) guided down numbers for itsDecember (Q2) down to $0.72 to $0.76 EPS. That is down from the $0.94First Call consensus.  It also sees $365 to $370 million in revenues,also under the $424.5 estimate.  For Fiscal-2009, the company sees$0.94 to $1.07 EPS rather than the $1.47 consensus.  What isinteresting here is that this implies that close to half of its entireshortfall will have come from this last quarter period.  Wall Streetdoesn’t believe the ladies here that are selling to Main Street.  Thisstock is down nearly 30% at $8.20 this morning.  Its "prior" 52-weektrading range was $10.55 to $21.79. 

We have not heard from Bare Escentuals, Inc. (NASDAQ: BARE) in sometime.  Its shares are down only 2% to $4.91 today.  The difference hereis that the stock already went to hell in a hand basket as its 52-week tradingrange is $4.91 to $29.90.  It looks like when women have to start chopping down on the expenses, maybe they don’t have to worry about "only buying natural products" if it comes down to "cheaper or nothing."  History dictates that cheaper usually prevails over the "nothing" scenario.

We also haven’t heard from Perelman’s baby, Revlon Inc. (NYSE: REV).  Its reverse stock split did rather well for a bit, but evenit has been cut by more than half.  Shares are down less than 1% todayat $6.35, and its "revised" 52-week trading range after the reversestock split is $5.65 to $14.85.

The real question may be what is going on with Avon Products Inc.(NYSE: AVP).  We saw estimates cut at BMO today and saw Citi trimestimates last week.  We have not heard a peep from the company ina while.  Its stock is falling as though the company is about to enterthe confession parade.  Shares are down more than 7% at $20.32 today,and its 52-week trading range is $17.45 to $45.34.  It is still thelargest of the cosmetics pure-plays as its market cap is $8.7 billion.

The good news is that most of the cosmetics leaders are profitable.  But they are not quite as recession-proof as many husbands might suspect.

Jon C. Ogg
January 16, 2009