Heady Aroma Of Fame Proves Irresistible To Fragrance Shoppers

Hilary Duff has "With Love." Britney Spears has three perfumes: "Curious," "Fantasy" and the new "Believe." Elizabeth Taylor has a whole collection: "White Diamonds," "Passion," "Forever Elizabeth" and "Gardenia."

Not to be outdone, Mariah Carey recently launched "M." Plus, Nascar champion driver Jimmy Johnson is the face on Arden's (NasdaqGS: - ) men's lines.

A Danielle Steel fragrance launched at midtier department stores was a leading brand for J.C. Penney (NYSE: - ), Sears (NasdaqGS: - ) and Kohl's (NYSE: - ) for Mother's Day.

So the big question is: Will Spears' bad behavior send the fragrance retailer reeling?

Not likely, says William Chappell, senior analyst with SunTrust Robinson Humphrey.

"You can't just put a name on a bottle and sell it -- it has to smell good," he said. "These are nice-smelling fragrances."

Forgiving Foreigners

Plus, he points out that 50% of sales of the Britney line come from buyers outside of the U.S.

Foreigners generally show more tolerance for the antics of the rich and famous.

Not an issue, agrees Allan Mottus, a longtime industry consultant and editor of MottusBeauty.com.

"Women dismiss it -- in this day and age, they've all had their own troubles," he said. "They're rooting for Britney. It's not the Paris Hilton effect."

Elizabeth Arden understands the celebrity game, Mottus adds. He points to Elizabeth Taylor's "White Diamonds."

"Six divorces and in and out of rehab and it's still their bestselling product," he said. (It's actually seven, but who's counting?)

Business for the fragrance company has certainly been brisk.

In the fiscal fourth quarter, which ended June 30, total sales rose 27.8% year over year to $242.7 million. Profit was 20 cents a share, compared with a year-ago loss of 4 cents.

For the full year, sales gained 18% to $1.13 billion. Earnings climbed 5% to $1.21 a share.

The results look so good in part because fiscal 2006 was a lousy year for Arden. Many department stores closed after Federated Department Stores, now Macy's (NYSE: - ), merged with May Co.

Then Wal-Mart (NYSE: - ) decided to trim its inventory. That left Wal-Mart's fragrance counters short on Elizabeth Arden products at Christmas time.

But these factors appear to have only been a temporary setback.

In fact, they allowed Arden to buy two other fragrance distributors and their licenses, Riviera and Sovereign Sales, which were harder hit by the industry problems. About 20% of Arden's sales come from its distribution arm.

"We believe Arden will display meaningful year-over-year earnings growth over the next few quarters, due partly to easy comparisons versus a year ago, when the initial impact of the Sovereign acquisition was quite dilutive to earnings," Wedbush Morgan Securities analyst Rommel Dionisio wrote in a note to investors.

"Given the significant restructuring and integration of the acquisition, this new business is expected to be accretive to earnings," Dionisio wrote.

Street Smarts At The Top

Mottus says the real brains behind the business is Chief Executive E. Scott Beatty.

"He's very nimble and very good at picking up on trends and very entrepreneurial and acquisitive for a finance guy," he said. "They're not heavy on staff and overhead, so they can make a decision, exploit it and if it isn't successful, move on. A lot of other companies can't keep up with Arden."

Among the challenges for Arden, analysts say, is moving more strongly into the international space.

The company is going toe-to-toe in the celebrity game with German-owned Coty, which is about twice Arden's size.

This fall, Coty is enjoying success with its Jennifer Lopez line. It's also introducing its second Sarah Jessica Parker scent and its first Gwen Stefani fragrance.

On top of that, Coty plans to roll out a second scent by David and Victoria Beckham, power hitters internationally.

Still, analysts polled by Thomson Financial expect Arden to see a healthy 39% gain in fiscal 2008 profit, to $1.68 a share. Analysts also forecast growth of about 20% each of the next two years.

Of course, all of this hinges on the continuing appeal of celebrities, which analysts like Dionisio say could be waning.

SunTrust's Chappell dismisses that issue. But he worries a little about the possibility that the upcoming holiday season could be troublesome.

Arden does 60% of its sales during the holidays and 18% of that comes from Wal-Mart, which has been having its own troubles lately.

"You tell me what the holiday season is going to look like, and I'll tell you how the stock is going to do," Chappell said.