Elizabeth Arden, Inc. Announces Fiscal 2014 Results

NEW YORK--(BUSINESS WIRE)--

Elizabeth Arden, Inc. RDEN, a global prestige beauty products company, today announced financial results for its fourth fiscal quarter and year ended June 30, 2014.

FISCAL 2014 RESULTS

Net sales for the fiscal year ended June 30, 2014, were $1.164 billion, a decrease of 13.4% from the prior year, or 12.8% excluding the impact of foreign currency rates. On an adjusted basis, net sales were $1.174 billion, a decrease of 12.7% from the prior year, or 12.1% excluding the impact of foreign currency rates. The net loss per diluted share for the fiscal year ended June 30, 2014, was $4.90. The net loss for the current year includes a valuation allowance of $89.5 million recorded as a non-cash charge recorded against U.S. deferred tax assets. On an adjusted basis, excluding non-recurring items, net loss per diluted share for the fiscal year ended June 30, 2014, was $0.55. The non-recurring items include Elizabeth Arden repositioning and restructuring costs, a one-time gain related to the reversal of a contingent liability associated with an acquisition, and costs associated with the Company's 2014 Performance Improvement Plan (the “2014 Improvement Plan”) that was announced on June 23, 2014. A reconciliation between GAAP and adjusted results can be found in the tables and footnotes at the end of this press release.

FOURTH QUARTER RESULTS

Net sales for the three months ended June 30, 2014, were $191.7 million, a decrease of 28.4%, as compared to the prior year. On an adjusted basis, net sales were $201.2 million, a decrease of 24.8% as compared to the prior year. Net loss per diluted share for the fourth quarter of fiscal 2014 was $5.24. On an adjusted basis, excluding the non-recurring items discussed above, net loss per diluted share for the fourth fiscal quarter of 2014 was $1.04. A reconciliation between GAAP and adjusted results can be found in the tables and footnotes at the end of this press release.

While the Company had expected weaker sales comparisons due to the lower level of fragrance launch activity in fiscal 2014 versus fiscal 2013, the decline in sales of celebrity fragrances, particularly the Justin Bieber and Taylor Swift fragrances, was steeper than anticipated. The inventory destocking at a number of non-prestige customers that impacted the Company's 2014 third fiscal quarter results continued through the fourth quarter of fiscal 2014 and led the Company's shipments to be below the rate of retail sales. The Company also proactively tightened distribution globally across its key Elizabeth Arden branded products and certain other pillar fragrance brands during fiscal 2014 to improve pricing and gross margins, which negatively impacted sales and profits, but is beginning to result in improved pricing.

By segment, for the 2014 fiscal year, net sales of the Company's North America and International segments declined by 14% and 8% (at constant currency rates), respectively. Retail sales at the Company's Elizabeth Arden flagship counters have increased 9% in North America since conversion, and retail sales at the Company's international flagship doors have increased 8% since conversion, or 16% excluding underperforming travel retail doors in Korea. The Company notes that the converted flagship doors are now in their second year and, as a result, the Company will not be reporting on this metric going forward.

E. Scott Beattie, Chairman, President and Chief Executive Officer commented, “Our primary focus as an organization is to improve performance and restore profitability and return on invested capital to levels consistent with historical results. In June 2014, we announced the 2014 Improvement Plan, which is expected to result in annualized savings of $27 million to $35 million. We remain committed to achieving a total of $40 million to $50 million of annualized savings upon full implementation of all of our cost-reduction efforts, and remain confident that we can get back to consistent improvement in quarter over quarter performance. Most of the changes to our organizational structure were implemented in the third and fourth quarters of fiscal 2014, which should position the Company for improved performance in fiscal 2015.”

OUTLOOK

Fiscal 2015 will be focused on stabilizing the business and will be the first year of a multi-year plan to rebuild profitability. The Company expects a modest improvement in adjusted earnings for fiscal 2015 over the prior year with continued improvement in fiscal 2016. Specifically, for fiscal 2015, the Company currently expects the following:

• The first quarter of fiscal 2015 will continue to be challenged by the same factors that affected recent quarters
• Net sales headwinds to continue for the first half of fiscal 2015, resulting primarily from a lower level of product innovation as compared to the first half of the prior fiscal year
• Net sales increases in the second half of the fiscal year versus the prior year period as the year-over-year product launch comparisons moderate and the Company begins to realize the impact of improved pricing
• Gross margin expansion due to improved pricing, better mix, lower discounts and realization of reduced supply chain and product costs
• Lower overall selling, general and administrative expenses, with some reinvestment of 2014 Improvement Plan savings to drive future growth
• Improved EBITDA margins from gross margin expansion and lower selling, general and administrative expenses
• Stronger cash flow from operations as a result of higher earnings and lower investment in inventory

STRATEGIC INVESTMENT BY RHÔNE CAPITAL

The Company also announced today that investment funds affiliated with Rhône Capital L.L.C. (“Rhône Capital”) have agreed to purchase $50 million of redeemable preferred stock of the Company and also will receive warrants to purchase 2.5 million shares of the Company's common stock at an exercise price of $20.39 per share, representing approximately 7.6% of the Company's outstanding common stock on an as-exercised basis. Rhône Capital also has advised the Company that, subject to market conditions and applicable legal or regulatory approvals, it intends to increase its ownership of the Company's common stock over time. Rhône Capital has agreed to enter into a standstill with the Company, pursuant to which it will not acquire more than 30% of the Company's common stock after giving effect to the exercise of the warrants. Dividends on the preferred stock will be payable at a rate of 5% annually. Goldman, Sachs & Co. acted as financial advisor to the Company, and Weil, Gotshal & Manges LLP acted as legal counsel to the Company.

Rhône Capital is an investment firm focused on global investments in businesses with international presence and global scale, with particular expertise in the consumer product, retail and beauty sectors and with a track record of adding value in public companies as a minority investor. In connection with its investment, Rhône Capital has the right to designate one member to the Company's Board of Directors for so long as it maintains its initial percentage interest in the Company, and the right to designate an additional member in the event that Rhône Capital acquires an ownership stake in the Company's common stock of 20% or more on a fully diluted basis.

M. Steven Langman, Co-Founder of Rhône Capital, commented, “Having assessed the opportunity, and focused on the market positioning of Elizabeth Arden, the quality and potential of Elizabeth Arden's brand portfolio, and the quality of the Company's management team, we firmly believe that this represents a unique investment opportunity to partner with a proven entrepreneurial organization and help them achieve their ambition to be a leader in the global beauty industry.”

Mr. Beattie added, “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. I am confident that we have a compelling business plan to improve the Company's performance. Rhône Capital's investment and commitment to Elizabeth Arden in light of its significant experience in our industry is evidence that Rhône Capital shares our optimism and belief in the outlook for the Company."

The Company will host a conference call today, August 19, 2014 at 8:30 a.m. Eastern Time. All interested parties can listen to a live web cast of the Company's conference call by visiting the Investor Relations section of the Corporate tab on the Company's web site at http://ir.elizabetharden.com. An online archive of the broadcast will be available within one hour of the completion of the call and will be accessible on the Company's web site until September 2, 2014.

Elizabeth Arden is a global prestige beauty products company with an extensive portfolio of prestige beauty brands sold in over 120 countries. The Company's brand portfolio includes Elizabeth Arden skincare, color and fragrance products; its professional skin care lines, Elizabeth Arden Rx and Elizabeth Arden PRO; the celebrity fragrance brands of Britney Spears, Elizabeth Taylor, Jennifer Aniston, Justin Bieber, Mariah Carey, Nicki Minaj, and Taylor Swift; the designer fragrance brands of Juicy Couture, Alfred Sung, BCBGMAXAZRIA, Geoffrey Beene, Halston, Ed Hardy, John Varvatos, Lucky Brand, Rocawear and Wildfox Couture; and the lifestyle fragrance brands Curve, Giorgio Beverly Hills, and PS Fine Cologne.

ELIZABETH ARDEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS DATA
(Unaudited)
(In thousands, except percentages and per share data)
			Three Months Ended								Twelve Months Ended
			June 30,				June 30,				June 30,				June 30,
			2014				2013				2014				2013
Net Sales			$	191,717			$	267,579			$	1,164,304			$	1,344,523
Cost of Goods Sold:
Cost of Sales				148,791				147,124				686,906				709,344
Depreciation Related to Cost of Goods Sold				1,958				1,712				7,742				6,386
Total Cost of Goods Sold				150,749				148,836				694,648				715,730
Gross Profit				40,968				118,743				469,656				628,793
Gross Profit Percentage				21.4	%			44.4	%			40.3	%			46.8	%
Selling, General and Administrative Expenses				124,090				112,993				489,803				517,250
Depreciation and Amortization				11,270				10,828				44,392				39,583
Total Operating Expenses				135,360				123,821				534,195				556,833
Interest Expense, Net				7,454				5,794				25,825				24,309
(Loss) Income Before Income Taxes				(101,846	)			(10,872	)			(90,364	)			47,651
Provision for (Benefit from) Income Taxes				54,660				(5,863	)			56,832				6,940
Net (Loss) Income				(156,506	)			(5,009	)			(147,196	)			40,711
Net Loss Attributable to Noncontrolling Interests				(571	)			--				(1,468	)			--
Net (Loss) Income Attributable to Elizabeth Arden Shareholders			$	(155,935	)		$	(5,009	)		$	(145,728	)		$	40,711
As reported:
Net (Loss) Income Per Basic Share Attributable to Elizabeth Arden Shareholders			$	(5.24	)		$	(0.17	)		$	(4.90	)		$	1.37
Net (Loss) Income Per Diluted Share Attributable to Elizabeth Arden Shareholders			$	(5.24	)		$	(0.17	)		$	(4.90	)		$	1.33
Basic Shares				29,753				29,514				29,720				29,672
Diluted Shares				29,753				29,514				29,720				30,539
EBITDA (a)			$	(81,164	)		$	7,462			$	(12,405	)		$	117,929
EBITDA margin (a)				(42.3	)%			2.8	%			(1.1	)%			8.8	%
Adjusted to exclude non-recurring costs, net of taxes (b)(c)(d):
Net Sales			$	201,181			$	267,579			$	1,173,768			$	1,344,523
Gross Profit			$	80,852			$	131,570			$	525,178			$	665,148
Gross Profit Percentage				40.2	%			49.2	%			44.7	%			49.5	%
Net (Loss) Income Attributable to Elizabeth Arden Shareholders			$	(30,831	)		$	3,121			$	(16,281	)		$	65,335
Net (Loss) Income Per Basic Share Attributable to Elizabeth Arden Shareholders			$	(1.04	)		$	0.11			$	(0.55	)		$	2.20
Net (Loss) Income Per Diluted Share Attributable to Elizabeth Arden Shareholders			$	(1.04	)		$	0.10			$	(0.55	)		$	2.14
EBITDA (a)			$	(24,753	)		$	21,845			$	47,443			$	156,714
EBITDA margin (a)				(12.3	)%			8.2	%			4.0	%			11.7	%

(a) EBITDA is defined as net income attributable to Elizabeth Arden shareholders plus the provision for income taxes (or net loss attributable to Elizabeth Arden shareholders, less the benefit from income taxes) plus interest expense, plus depreciation and amortization, plus net income or loss attributable to noncontrolling interest. EBITDA should not be considered as an alternative to income (loss) from operations or net income (loss) attributable to Elizabeth Arden shareholders (as determined in accordance with generally accepted accounting principles (GAAP)) as a measure of our operating performance or to net cash provided by operating activities (as determined in accordance with GAAP) or as a measure of our ability to meet cash needs. We believe that EBITDA is a measure commonly reported and widely used by investors and other interested parties as a measure of a company's operating performance and debt servicing ability because it assists in comparing performance on a consistent basis without regard to capital structure, depreciation and amortization or non-operating factors (such as historical cost). Accordingly, as a result of our capital structure, we believe EBITDA is a relevant measure. This information has been disclosed here to permit a more complete comparative analysis of our operating performance relative to other companies and of our debt servicing ability. EBITDA may not, however, be comparable in all instances to other similar types of measures. We have also disclosed EBITDA as adjusted without giving effect to acquisition-related, Elizabeth Arden brand repositioning, 2014 Performance Improvement Plan, and restructuring and other non-recurring costs. This disclosure is being provided for comparability purposes because we believe it is meaningful to our investors and other interested parties to understand the EBITDA performance of the Company on a consistent basis without regard to the effect of acquisition-related, Elizabeth Arden brand repositioning, 2014 Performance Improvement Plan, and restructuring and other non-recurring costs.

The table below reconciles net income (loss) attributable to Elizabeth Arden shareholders, as determined in accordance with GAAP, to EBITDA and to EBITDA as adjusted: (For a reconciliation of net income (loss) attributable to Elizabeth Arden shareholders or net income (loss) to EBITDA for prior periods, see the Company's filings with the Securities and Exchange Commission which can be found on the Company's website at www.elizabetharden.com).

(Amounts in thousands, except per share data)			Three Months Ended									Twelve Months Ended
			June 30,				June 30,					June 30,				June 30,
			2014				2013					2014				2013
Net (Loss) Income Attributable to Elizabeth Arden Shareholders			$	(155,935	)		$	(5,009	)			$	(145,728	)		$	40,711
Plus:
Provision for (benefit from) income taxes				54,660				(5,863	)				56,832				6,940
Interest expense, net				7,454				5,794					25,825				24,309
Depreciation related to cost of goods sold				1,958				1,712					7,742				6,386
Depreciation and amortization				11,270				10,828					44,392				39,583
Net loss attributable to noncontrolling interest				(571	)			--					(1,468	)			--
EBITDA				(81,164	)			7,462					(12,405	)			117,929
Non-recurring costs (c)(d)				56,411				14,383					59,848				38,785
EBITDA as adjusted			$	(24,753	)		$	21,845				$	47,443			$	156,714

The table below reconciles net cash flow (used in) provided by operating activities, as determined in accordance with GAAP, to EBITDA:
(Amounts in thousands, except per share data)						Twelve Months Ended
						June 30,				June 30,
						2014				2013
Net cash (used in) provided by operating activities						$	(38,045	)		$	62,091
Changes in assets and liabilities, net of acquisitions							10,542				30,508
Interest expense, net							25,825				24,309
Amortization of senior note offering and credit facility costs							(1,499	)			(1,367	)
Amortization of senior note premium							318				--
Provision for income taxes							56,832				6,940
Deferred income taxes							(54,105	)			1,055
Amortization of share-based awards							(5,783	)			(5,607	)
Asset impairments							(6,490	)			--
EBITDA						$	(12,405	)		$	117,929

(b) The table below reconciles the calculation of (i) net sales, (ii) gross profit and net (loss) income attributable to Elizabeth Arden shareholders and (iii) net (loss) income per share attributable to Elizabeth Arden shareholders on a basic and diluted basis from the amounts reported in accordance with GAAP to such amounts before giving effect to acquisition-related, Elizabeth Arden brand repositioning, 2014 Performance Improvement Plan, and restructuring other non-recurring costs. This disclosure is being provided for comparability purposes because we believe it is meaningful to our investors and other interested parties to understand our operating performance on a consistent basis without regard to the effect of acquisition-related, Elizabeth Arden brand repositioning, 2014 Performance Improvement Plan, and restructuring other non-recurring costs. The presentation in the table below of the non-GAAP information titled “Net Sales as adjusted,” “Gross profit as adjusted,” “Net (loss) income attributable to Elizabeth Arden shareholders as adjusted” and “Net (loss) income per basic and diluted share attributable to Elizabeth Arden shareholders as adjusted” is not meant to be considered in isolation or as a substitute for net sales, gross profit, net (loss) income attributable to Elizabeth Arden shareholders or net (loss) income per basic or diluted share attributable to Elizabeth Arden shareholders prepared in accordance with GAAP.

(Amounts in thousands, except per share data)			Three Months Ended								Twelve Months Ended
			June 30,				June 30,				June 30,				June 30,
			2014				2013				2014				2013
Net Sales:
Net Sales, as reported			$	191,717			$	267,579			$	1,164,304			$	1,344,523
Non-recurring costs (c) (d)				9,464				--				9,464				--
Net Sales, as adjusted			$	201,181			$	267,579			$	1,173,768			$	1,344,523
Gross Profit:
Gross Profit, as reported			$	40,968			$	118,743			$	469,656			$	628,793
Non-recurring costs (c) (d)				39,884				12,827				55,522				36,355
Gross Profit, as adjusted			$	80,852			$	131,570			$	525,178			$	665,148
Net (Loss) Income Attributable to Elizabeth Arden Shareholders:
Net (loss) income attributable to Elizabeth Arden shareholders, as reported			$	(155,935	)		$	(5,009	)		$	(145,728	)		$	40,711
Non-recurring costs, net of tax (c) (d) (e)				125,104				8,130				129,447				24,624
Net (loss) income attributable to Elizabeth Arden shareholders, as adjusted			$	(30,831	)		$	3,121			$	(16,281	)		$	65,335
Net (Loss) Income Per Basic Share Attributable to Elizabeth Arden Shareholders:
Net (loss) income per basic share attributable to Elizabeth Arden shareholders, as reported			$	(5.24	)		$	(0.17	)		$	(4.90	)		$	1.37
Non-recurring costs, net of tax (c) (d) (e)				4.20				0.28				4.35				0.83
Net (loss) income per basic share attributable to Elizabeth Arden shareholders, as adjusted			$	(1.04	)		$	0.11			$	(0.55	)		$	2.20
Net (Loss) Income Per Diluted Share Attributable to Elizabeth Arden Shareholders:
Net (loss) income per diluted share attributable to Elizabeth Arden shareholders, as reported			$	(5.24	)		$	(0.17	)		$	(4.90	)		$	1.33
Non-recurring costs, net of tax (c) (d) (e)				4.20				0.27				4.35				0.81
Net (loss) income per diluted share attributable to Elizabeth Arden shareholders, as adjusted			$	(1.04	)		$	0.10			$	(0.55	)		$	2.14

(c) For the three months ended June 30, 2014, net sales, gross profit and net loss include $9.5 million (pre-tax) of returns and markdowns under our 2014 Performance Improvement Plan related to the closing of our Puerto Rico affiliate, exiting of unprofitable doors, changes in customer relationships, and non-renewal and expiration of certain fragrance license agreements. In addition, gross profit and net loss also include the following:

		*		$0.2 (pre-tax) million of non-recurring product changeover costs related to the repositioning of the Elizabeth Arden brand;
		*		$30.2 (pre-tax) million of inventory write-downs under our 2014 Performance Improvement Plan due to the expiration, non-renewal and wind-down of fragrance license agreements and discontinuation of certain products; and
		*		$0.4 million (pre-tax) of transition costs incurred with respect to the elimination of certain sales positions and other staff positions announced in the fall of 2013 (the Fall 2013 Staff Reduction).
In addition, net loss also includes:
		*		$16.2 million (pre-tax) in expenses under our 2014 Performance Improvement Plan, comprised of $9.7 million (pre-tax) in asset impairments and related charges primarily due to the non-renewal and expiration of fragrance license agreements, $6.0 million (pre-tax) of severance and other employee-related expenses associated with the reduction in global headcount positions and $0.5 million (pre-tax) of contract termination costs;
		*		$0.1 million (pre-tax) of severance and other employee-related expenses and $0.2 million of related transition expenses incurred with respect to the Fall 2013 Staff Reduction; and
		*		a valuation allowance of $89.5 million against our U.S. deferred tax assets taken as a non-cash charge to income tax expense.

For the twelve months ended June 30, 2014, net sales, gross profit and net loss include $9.5 million (pre-tax) of returns and markdowns under our 2014 Performance Improvement Plan related to the closing of our Puerto Rico affiliate, exiting of unprofitable doors, changes in customer relationships and non-renewal and expiration of certain fragrance license agreements. In addition, gross profit and net loss also include the following:

		*		$14.0 (pre-tax) million of non-recurring product changeover costs related to the repositioning of the Elizabeth Arden brand;
		*		$30.2 (pre-tax) million of inventory write-downs under our 2014 Performance Improvement Plan due to the expiration, non-renewal and wind-down of fragrance license agreements and discontinuation of certain products; and
		*		$1.8 million (pre-tax) of transition costs incurred with respect to the Fall 2013 Staff Reduction.
In addition, net loss also includes:
		*		$16.2 million (pre-tax) in expenses under our 2014 Performance Improvement Plan, comprised of $9.7 million (pre-tax) in asset impairments and related charges primarily related to the non-renewal and expiration of fragrance license agreements, $6.0 million (pre-tax) of severance and other employee-related expenses associated with the reduction in global headcount positions and $0.5 million (pre-tax) of contract termination costs;
		*		a credit of $17.2 million (pre-tax) for the complete reversal of the remaining balance of the contingent liability for potential payments to Give Back Brands, LLC based on our determination during the second quarter of fiscal 2014 that it was not probable that the performance targets for fiscal years 2014 and 2015 would be met;
		*		$2.8 million (pre-tax) of severance and other employee-related expenses and $1.4 million (pre-tax) of related transition expenses incurred with respect to the Fall 2013 Staff Reduction;
		*		$1.1 million (pre-tax) of non-recurring product changeover expenses related to the repositioning of the Elizabeth Arden brand; and
		*		a valuation allowance of $89.5 million against our U.S. deferred tax assets taken as a non-cash charge to income tax expense.
(d) For the three months ended June 30, 2013, gross profit and net loss includes the following:
		*		$12.9 million (pre-tax) of non-recurring product changeover costs and product discontinuation charges related to the repositioning of the Elizabeth Arden brand.
In addition, net loss also includes:
		*		$1.5 million (pre-tax) of expenses related to a third party provider of freight audit and payment services that entered into bankruptcy after receiving funds from us to pay our freight invoices and breaching its obligation to remit those funds to the freight companies.
For the twelve months ended June 30, 2013, gross profit and net income includes the following:
		*		$13.8 million (pre-tax) of inventory-related costs primarily for inventory we purchased from New Wave Fragrances LLC and Give Back Brands LLC prior to the acquisition of licenses and certain other assets from those companies (the 2012 acquisitions) and other transition costs; and
		*		$22.6 million (pre-tax) of non-recurring product changeover costs and product discontinuation charges related to the repositioning of the Elizabeth Arden brand.
In addition, net income also includes:
		*		$0.4 million (pre-tax) in transition expenses associated with the 2012 acquisitions;
		*		$0.5 million (pre-tax) of non-recurring product changeover expenses related to the repositioning of the Elizabeth Arden brand; and
		*		$1.5 million (pre-tax) of expenses related to a third party provider of freight audit and payment services that entered into bankruptcy after receiving funds from us to pay our freight invoices and breaching its obligation to remit those funds to the freight companies.

(e) Our effective tax rate on a reported basis, which is calculated as a percentage of income or loss before income taxes, was (53.7)% and (62.9)% for the three and twelve months ended June 30, 2014, respectively. Our effective tax rate on a reported basis for the three and twelve months ended June 30, 2013, was 53.9% and 14.6%, respectively. On an adjusted basis, our tax rate was 30.9% and 41.8% for the three and twelve months ended June 30, 2014, respectively. On an adjusted basis, for the three and twelve months ended June 30, 2013, our effective tax rate was 11.1% and 24.4%, respectively.