Arden licenses Claiborne scents

Drug Store News, June 23, 2008

Elizabeth Arden recently entered into an exclusive licensing agreement with Liz Claiborne for its fragrance portfolio, a move that adds several high-profile brands to Elizabeth Arden's portfolio, including Curve, a top-selling men's brand at mass.

Terms of the deal were not disclosed, but Elizabeth Arden will acquire Liz Claiborne's current inventory and pay a royalty fee to Liz Claiborne for the 10-year agreement, renewable in two five-year increments, noted SunTrust Robinson Humphrey analyst William Chappell in a recent research note.

"The deal adds several high-profile brands to Elizabeth Arden's portfolio, including Juicy Couture ([a top-selling brand] in the United States), Usher (one of the top launches in 2007), and Curve (a top-selling men's brand at mass). It will also provide Elizabeth Arden with a greater scale for its department store and international businesses," Chappell said.

E. Scott Beattie, chairman, president and chief executive officer of Elizabeth Arden, stated that the deal will allow the company to benefit from improved market share and productivity in its North American fragrance business, gain efficiencies from a larger fragrance business, increase gross margins and bolster sales volume of its international business.

For Liz Claiborne, the transaction will enable it to maximize profitability going forward. "Through this partnership with Elizabeth Arden, we can continue to successfully develop and market brand-enhancing fragrances in a more capital-efficient manner, leveraging our strength in brand building with Arden's expertise in developing and growing fragrance businesses," said William McComb, chief executive officer of Liz Claiborne.

Liz Claiborne expected the transaction to have a positive impact on its 2008 cash flows, and to have no impact on 2008 projected adjusted earnings per share and operating margin. Looking forward to 2009 and beyond, the company expected the impact of the royalty income to be accretive to both EPS and operating margin.

Elizabeth Arden expected the deal to contribute to both net sales and earnings growth in fiscal 2009. It expected to incur advertising and marketing expenses paid by Liz Claiborne and other transaction-related expenses during the fourth quarter of fiscal 2008, and the first half of fiscal 2009. Elizabeth Arden expected its gross margins to be impacted in fourth quarter fiscal 2008, and through the first half of fiscal 2009, by the sale of Liz Claiborne inventory that Elizabeth Arden acquired prior to the effective date as a distributor. After the full impact of these costs, Elizabeth Arden expected the deal to be accretive to earnings in the first half of fiscal 2009.

"We note that Elizabeth Arden currently distributes the Liz Claiborne brands at mass (roughly $70 million of Elizabeth Arden's current revenue base)," Chappell stated. "The [first half of 2009] accretion should be driven by: 1) the transition of these sales from a distribution gross margin (roughly 20 percent) to a company-owned margin (estimated to be 60 percent to 70 percent), and 2) the addition of the non-mass sales to its base."