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Bottom Lines Squeezed At Key Beauty Firms

Revlon, Avon and Shiseido continue uphill battle.

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It remains a tough beauty world out there.

Companies on three different continents continued their uphill battles against unenthusiastic consumers, inventory-adverse retailers and unsteady currencies even as their financial results revealed the ugliness in the market.

Second-quarter earnings dropped 64.3 percent at Avon Products Inc. and nearly evaporated entirely at Revlon Inc., with both citing restructuring initiatives and currency fluctuation as contributing to the decreases.

In Tokyo, Shiseido Co. Ltd. reported a 57.8 percent slide in first-quarter profits along with a 14.9 percent sales decline. Fighting the appreciation of the yen and weakness in its home market, the Japanese beauty giant slashed profit targets for the first half and full year based on deteriorating market conditions. Shiseido’s shares inched up 0.6 percent.

In Paris, L’Oréal, reporting sales but not earnings, and identified the end of March as perhaps the weakest point of the recession but was able to report top-line growth accelerated in the second quarter. Doing business in euros, currency shifts benefited its business and it forecast “gradual” improvement for the remainder of the fiscal year. Its shares also picked up 1 percent in Thursday trading.

Elsewhere, both Sally Beauty Holdings Inc. and Nu Skin Enterprises Inc. registered 7.3 percent increases in quarterly net income, with Sally’s sales down less than 1 percent and Nu Skin’s up a similar amount.

For the three months ended June 30, Avon’s net income was $84.6 million, or 19 cents a diluted share, compared with $237 million, or 55 cents, in the year-ago quarter. Excluding restructuring costs, earnings per share was 38 cents, 4 cents above the average analyst estimate carried by Yahoo Finance.

Revenues dipped 9.7 percent to $2.47 billion from $2.74 billion, but were up 5 percent in local currencies. Gross margin fell 150 basis points to 62.2 percent of sales.

In local currencies, fragrance sales were up 8 percent, color cosmetics were up 7 percent, personal care was up 6 percent and skin care rose 1 percent. However, translated into dollars, the businesses fell by a respective 9 percent, 9 percent, 10 percent and 12 percent.

For the six months, income was off 52.2 percent at $202.1 million, or 46 cents a diluted share, compared with $423.2 million, or 97 cents, a year ago. Total revenues decreased 11.2 percent to $4.65 billion from $5.24 billion.

Andrea Jung, chairman and chief executive officer, said Thursday that, although the number of active representatives grew an “exceptional” 11 percent, the continuing shifts in currency had a negative impact on reported results.

Still, she said, top-line results built on strong momentum that carried over from the end of the first quarter. “This was driven by both channel and brand strength,” she said.

She also told analysts the firm continued to register strong results in Latin America, where Avon enjoyed “healthy double-digit growth” for the ninth consecutive quarter.

Jeffries & Co. Inc. analyst Douglas Lane maintained his “buy” rating on the stock. “We continue to believe underlying momentum acceleration under way at [Avon] is being masked by adverse currency, and would continue to buy the stock ahead of the currency comps becoming much more favorable” in the fourth quarter, he wrote, noting that organic growth, unit volumes and sales force activity accelerated further in the second quarter.

Shares added $2.51, or 8.4 percent, to close at $32.25.

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