February 5, 2009 / 7:49 PM / 8 years ago

UPDATE 1-Estee, Arden profits top view, plan job cuts

5 Min Read

* Estee Q2 EPS $0.80 vs Wall St view $0.77

* Estee sets 4-year plan to boost sales; cuts jobs

* Estee Q2 sales down 11.6 pct; Arden sales down 12.4 pct

* Estee shares up 1.2 pct; Arden up 9.1 pct (Adds sales, savings details, background, analyst comment)

By Aarthi Sivaraman

NEW YORK, Feb 5 (Reuters) - Estee Lauder Cos Inc (EL.N) and Elizabeth Arden Inc RDEN.O posted profits that topped forecasts and said they would cut jobs as the recession's squeeze on cosmetics purchases was not likely to end soon.

Shares of Arden rose 9.1 percent, while Estee shares were up 1.2 percent.

Both companies stood by their full-year outlooks and said they would realign their operations after major client Macy's Inc (M.N) announced plans to consolidate its divisions into one unit and cut 7,000 jobs.

Estee, known for its Clinique and M.A.C cosmetic brands, outlined a four-year restructuring plan on Thursday, taking such steps as slashing about 2,000 jobs, or roughly 6 percent of its workforce, over two years and boosting overseas sales to cut expenses and boost overall revenue.

Arden, which makes celebrity perfumes like Britney Spears and Prevage anti-aging skin products, also announced a reduction in headcount as it consolidates operations, but did not give details.

Both Estee and Arden had cut their profit views last month, citing disappointing sales during the holiday season. Sharp cutbacks in consumer spending made the 2008 holiday season the worst in nearly 40 years as shoppers battled job losses, credit problems and declining home values.

"We know this recession is likely to be longer, deeper and tougher than any in recent memory," Estee Chief Executive William Lauder said during a conference call. The company said its outlook assumed the downturn would last at least 12 to 18 more months.

Estee Sees Cost Savings

Estee, the bigger of the two companies, posted a net profit of $158 million, or 80 cents per share, in the second quarter ended Dec. 31 down from $224.4 million, or $1.14 per share, a year earlier.

Analysts on average expected earnings of 77 cents per share, according to Reuters Estimates.

Sales fell about 11.6 percent to $2.04 billion, with perfume sales sliding 20.3 percent.

The problem, said Sanford Bernstein analyst Ali Dibadj, was the perfume category's dependence on department stores, which faced a dismal holiday season themselves.

For the full year, Estee continues to expect per-share earnings of $1.30 to $1.60, with sales flat to down 3 percent on a constant-currency basis.

The company said uncertainty in consumer spending, the financial strength of some of some of its key retail customers and careful inventory levels would have a "dramatic effect" on the third quarter. It also pointed to the stronger dollar for taking a hit to net sales.

Estee expects sales to fall 2 percent to 4 percent in the third quarter on a constant-currency basis, and earnings of flat to up 8 cents per share.

The restructuring will help cut costs by $450 million to $550 million, Estee said. It also expects to take charges tied to that plan and other one-time costs of $350 million to $450 million over the next few years.

Arden Profit Tops View

Arden also faced a decline in perfume sales during the quarter, as stores such as Macy's stocked less products on shelves to avoid ending up with unsold inventory.

Its second-quarter net profit fell to $17.4 million, or 61 cents per share, from $33.8 million or $1.15 per share.

But the profit, which excludes the effect of a Liz Claiborne LIZ.N license agreement and restructuring costs, topped the analysts' average forecast of 59 cents.

Sales fell 12.4 percent to $370 million.

Arden kept its full-year sales outlook for a decline of 4 percent to 5 percent, and earnings of 71 cents to 84 cents. The company is taking steps such as reducing inventory and accelerating cost savings to improve its profitability in fiscal 2010, CEO Scott Beattie said.

The biggest help for Arden, at this point, would be a recovery in the economy, said Arnold Ursaner, an analyst with CJS Securities.

"When you see somebody like Macy's cutting 7,000 people, that is not a strong environment to work in," he said.

Estee shares rallied up 31 cents at $26.50 to cut earlier losses, while Arden shares were up 57 cents to $6.81. (Editing by Derek Caney, Lisa Von Ahn, Phil Berlowitz)

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