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Saturday, April 25th, 2015


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Stock Spotlight: Women’s Personal Care

Hate to break it to you guys, but women control the purse strings. Yes, the fairer sex manages the affairs of not just our heart, but our checkbook as well – and we are merely along for the ride to the shopping mall. Most often, the first stop on this tour de femme is the cosmetics counter.

But don’t break a nail over it, because cosmetics are a big time business that both guys and girls can make a pretty penny over. So let’s pull out a mirror as we reflect upon the stocks of some of the top cosmetic makers out there.

Estée Lauder Companies, Inc. (EL)

Snapshot: Estée Lauder engages in the manufacture, marketing, and sale of skin care, makeup, fragrance, and hair care products worldwide. It also licenses fragrances and cosmetics sold under various brands including Aramis, Donna Karan, Clinique and Perscriptives.

Price: $37.54

Pros:

  • The company has a stable of name brands in addition to what is mentioned above, such as Tommy Hilfiger, Origins, Missoni and my favorite, Donald Trump the Fragrance – for the man who wants to smell as if he’s just been fired.
  • Estée Lauder had enough sales in 2005 to buy Miami (if Trump doesn’t beat ‘em to it), with $6.3 billion in revenues. That’s a ton of lip gloss, folks.
  • While revenues were solid, net income was not a pretty sight, as you will learn below. Still, the company is forecast to turn it up a notch in fiscal 2007 (which starts in June 2006). If you can trust the forecasts, this might be a good turnaround play come summertime.

Cons:

  • Estée Lauder has said that its corporate makeover will cause third quarter earnings to be "significantly lower" than one year ago. The company blames cost savings initiatives and store closings at partners May Department Stores and Federated Department Stores.
  • The company pointed the finger at the shedding of a discontinued unit, but still, net income in its most recent quarter came in nearly half of what it was a year ago. Somebody get me some blush for this balance sheet, fast!
  • Estée Lauder has blamed its ills on discontinuing operations and things beyond its control. Those excuses are fine for a quarter or two; but if the blame game continues, then watch out because one-time charges can become more like every-time charges.

Elizabeth Arden (RDEN)

Snapshot: Elizabeth Arden manufactures, owns and licenses 50 perfumes. The company also distributes more than 250 fragrances to retailers, including popular brands such as Elizabeth Arden, Elizabeth Taylor’s White Diamonds, Red Door, Sunflowers and White Shoulders.

Price: $22.38

Pros:

  • Sales for Elizabeth Arden’s parade of brands jumped 321 percent in one year.
  • The stock has blown Revlon and Estée Lauder out of the perfume-scented water, jumping more than 140 percent in the past three years, as compared with a 40 percent rise for the competition.
  • Net earnings during Elizabeth Arden’s second quarter shattered company and analyst forecasts by five cents a share coming in at $1.12 per share. Launches of new Brittany Spears and 5th Avenue product lines played a big part in the strong quarterly report.

Cons:

  • Despite a strong run over the last three years in the stock’s share price, company shares have traded in a narrow range for the last year.
  • Sales in Europe and North America have stagnated the past quarter, while revenues from the rest of the world have gone gangbusters. For the stock to jump to the next level, sales at these two bases need to go up a notch, along with growth in its newest target market of Southeast Asia.
  • The company, as do Revlon and Estée Lauder, sees the China market as a tremendous growth opportunity. Any hiccups in the land of a billion people could cost Elizabeth Arden, and its competitors for that matter, well, billions.

Revlon, Inc. (REV)

Snapshot: Revlon manufactures, markets and sells cosmetics, skincare, fragrances, and personal care products in the United States and abroad. It offers a wide range of cosmetics and skincare products.

Price: $3.07

Pros:

  • Revlon is doing everything known to man to reinvent itself and turnaround the company into profit land. Those efforts include introducing new lines of lipstick, makeup, nail colors, lotions, cleansers, creams, toners and moisturizers.
  • The company’s shares have fallen from the penthouse to penny stock status. While this sounds like a negative off the top, it does make the stock attractive to highly speculative traders and deep value investors, as long as they can stomach that Revlon’s corporate cosmetic surgery needs a heckuva lot of time to recover.
  • Net income during Q4 did rise a nifty 40 percent. Only problem is that they also had to report a full-year loss of $84 million.

Cons:

  • Last year’s $84 million loss was far better than the loss of $143 million in 2004. Sounds like a turnaround may be brewing, but remember, Revlon has lost $227 million in the last two years alone! And that’s nothing to blush about.
  • With the exception of companies that have recently merged and must consolidate earnings, watch out for anyone who touts EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). This line item is not a GAAP (Generally Accepted Accounting Principles) measure.
  • Always very difficult to forecast when a company will actually turn profitable again, no matter what management touts.

* Price quotes are from March 27, 2006.

© 2008, Young Money Media, LLC. All rights reserved.

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