The Procter & Gamble Company (PG), Elizabeth Arden, Inc. (RDEN): Who’s The Best Buy?

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According to a French scientific abstract, women use make-up for two completely different reasons, camouflage or seduction. Whatever the reason, beauty is a multi-billion dollar business globally and investors should get in on the action. Markup on cosmetics and fragrances can range from 15% to several hundred percent.

There is barely an inch of a woman’s exterior body that some potion can’t “improve,” from the size of pores to hair thickeners that promise to add the look of 6500 hairs (since most women have over 100,000 hairs on their head this is not the big deal one would assume).

Even the brightest woman can rationally know cosmetics models are Photoshop beneficiaries yet still drop $100 on a cream that contains virtually the same chemical composition as any other on the market.

Another scientific study from the University of the Basque Country proved that most women use beauty products as an emotional panacea concluding, “Consumer satisfaction is greatest when the cosmetics brand helps to strengthen positive emotions through the perception of ‘caring for oneself’ and removing feelings of worry and guilt about not taking care of one’s appearance,” But the study’s author, Vanessa Apaolaza, added that first the cosmetic company has to convince them there is something to improve.

The Procter & Gamble Company (NYSE:PG)

Selling the sizzle

Many major cosmetics companies came to prominence in the 1930’s and 40s when marketing expert Elmer Wheeler’s immortal line, “Don’t sell the steak-sell the sizzle,” gained traction.

The three best known publicly-traded cosmetics companies are Elizabeth Arden, Inc. (NASDAQ:RDEN), The Est, and Revlon Inc (NYSE:REV) . Revlon Inc (NYSE:REV) was founded during the worst of The Great Depression in 1932.  The Est better known as Estee Lauder (NYSE:EL) was started in 1946 and Elizabeth Arden, Inc. (NASDAQ:RDEN) in 1910. But the newcomer to the pantheon of makeup products is one of the oldest names among US corporations, The Procter & Gamble Company (NYSE:PG), which owns Cover Girl and Max Factor (which they bought from Revlon Inc (NYSE:REV) in 1991) along with hair product line Pantene and grooming company Gillette.

Sales that fizzle

Of these four names, Revlon Inc (NYSE:REV) and Elizabeth Arden, Inc. (NASDAQ:RDEN) are struggling the most. Revlon Inc (NYSE:REV), in particular has had a very rough road since the 1980’s when Estee Lauder gained ascendance in the department store counter war with its gifts with purchase and perceived higher end status. Since then Revlon was taken private by Ronald Perelman (currently Chairman of the Board and 76% stake holder) who divested many of its brands. He tried to take it public twice; the second time in 1996 it took.

Revlon Inc (NYSE:REV) reported a Q1 loss of $0.13 EPS on Apr. 25 and the stock sold off 12%. Some have posited it could be a takeover target by The Procter & Gamble Company (NYSE:PG) and the lone analyst who covers it gives a $25.00 price target. The stock is up over 25% over the last year and while some think the Q1 miss pushed it into oversold territory, the company has struggled with stronger rivals for several decades.

Elizabeth Arden, Inc. (NASDAQ:RDEN) has make-up lines but its strength now is fragrance with more celebrity fragrances (Nicki Minaj, Taylor Swift, Justin Bieber) than any other fragrance house. However, these are less associated with luxury and end up at tier two or three outlets, drugstores and the like. It carries designer names like Ed Hardy, True Religion, and Kate Spade. Overall, their fragrances skew much younger than Estee Lauder’s.

The company reported Q3 earnings of a $0.04 loss per share on May 2 compared to a profit of $0.07 in the year ago quarter. It did beat analysts’ expectations on revenue but still sold off 4% after reporting. Those teen celebrity lines actually did well as did its Juicy Couture line with fragrance sales up 22%.

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