The prestige beauty business is taking a hit due to the economy.

Elizabeth Arden, Inc. posted a considerable drop in sales in its preliminary financial results for its second fiscal quarter ended Dec. 31, 2008. The company currently expects to report net sales in the range of $365 million to $370 million, which is a decrease of 12.5% to 13.5%, as compared to the prior year second quarter.

E. Scott Beattie, chairman, president and chief executive officer of Elizabeth Arden, Inc., commented, “The consumer and retail environment worldwide was more challenging than we expected when we provided guidance in our first quarter earnings release the first week of November. The performance of our U.S. Elizabeth Arden prestige department store business was much weaker than we had anticipated, though consistent with overall trends experienced in this channel. Additionally, economic conditions in our higher margin travel retail and distributor markets worsened considerably in November and December, which negatively impacted our international results.

“Our North America fragrance business fared relatively better, but shipments also were below what we had expected when we provided our guidance. While retail sales were generally consistent with our outlook for the holiday season for North American mass retailers, replenishment orders for this channel were below our expectations. Results also were impacted by our actions to limit credit risk by decreasing shipments to certain customers due to credit constraints at those customers. Despite the weak environment, we maintained operating profit and improved margins for our North America fragrance business as a whole for the first half of this fiscal year as compared to the prior year.”

Mr. Beattie continued, “While conditions remain extremely challenging, the strength of our multi-channel business model and brand portfolio led to increased market share in the North American fragrance market this quarter. We improved our already strong competitive position in the mass retail fragrance market, and with the addition of the Liz Claiborne brands in June, doubled our market share in the U.S. department store fragrance market. Notwithstanding the environment, we continued to invest in our key brands and have seen strong results in relative terms. The recently launched Viva la Juicy fragrance was this fall season’s number-one fragrance launch at U.S. prestige department stores at the fragrance counter, and the White Diamonds and Curve fragrances were once again the number one selling women’s and men’s prestige fragrances, respectively, at mass retailers.”

Mr. Beattie concluded, “Our priorities for the remainder of this fiscal year are to reduce inventory in order to maximize cash flow, focus our advertising and promotional expenditures on the brands, markets and channels of distribution that provide the best return and eliminate marginal spending, re-assess new product innovation in light of the current environment and accelerate the cost savings and business process re-engineering initiatives related to our Global Efficiency Re-engineering project in order to position our business for improved profitability in fiscal 2010.”

In light of the current economic and retail environment, the company believes it is necessary to revise its prior guidance—it expects net sales to decrease by 1% to 3% for the second half of its fiscal year ending June 30, 2009, or to increase by 1.5% to 3.5% excluding the unfavorable impact of foreign currency, as compared to the second half of the prior fiscal year.

This guidance assumes current retailer replenishment behavior and consumer and retailer trends globally, but also incorporates the anticipated contribution from the continued roll-out of the Liz Claiborne fragrances and the second half global launch of the new Elizabeth Arden fragrance, Pretty, and the comparatively weak third and fourth fiscal quarter performance in the prior year.

For the full fiscal year ending June 30, 2009, the company expects net sales to decline by 4% to 5%, as compared to the prior year period.