Elizabeth Arden Inc. (RDEN) and Estee Lauder Cos. (EL) cut their profit forecasts for their fiscal second quarters, signaling the hefty pressure the beauty industry is facing from rising unemployment, declines in consumer spending and dismal retail sales.

Estee Lauder said sales for the holiday shopping season were worse than previously expected. Elizabeth Arden pointed to a weak prestige department store business in the U.S. and said conditions in its higher margin travel retail and distributor markets worsened considerably in November and December.

Estee Lauder shares recently tumbled 15% to 24.75, and Elizabeth Arden lost 30% to 8. Some other beauty stocks also fell, with Avon Products Inc. (AVP) down 6% to 20.73 and L'Oreal (LRLCY) sliding 2% to 14.79.

"Their earnings guidance is very low," said Caris & Co. analyst Linda Bolton Weiser of Estee Lauder. "We've been hearing very bad news on prestige [products] in general. It's eye-opening but not that shocking."

Bolton Weiser said she was concerned about the outlook for Avon as well, but added that the company's direct-selling model could help partially offset economic weakness. She believes some other companies that sell beauty products, like Procter & Gamble Co. (PG) and Alberto-Culver Co. (ACV), could hold up a little better. P&G, which sells Olay face creams and Pantene shampoo, is a diversified company with businesses outside beauty, she noted. Alberto Culver has been benefiting from lower priced products like its VO5 line, she said.

Friday's forecasts suggest that the beauty industry - which has often been resilient in bad economies - may be suffering more than it has in previous recessions.

"The unprecedented global economic crisis produced one of the worst holiday seasons in decades, with many U.S. retailers experiencing double-digit sales declines in nearly all categories," Chief Executive William Lauder said in a statement.

Estee Lauder projected earnings for its fiscal second quarter of 75 cents to 82 cents a share, with sales down 6% on a constant-currency basis. The company in October projected earnings of 97 cents to $1.05 on a 2% to 3% revenue decline.

Lauder also cut its fiscal-year view, projecting earnings of $1.30 to $1.60 a share on revenue flat to down 3%, excluding foreign exchange fluctuations. The company in October lowered expectations to earnings of $2.20 to $2.50 a share, with revenue growing 3% to 5%.

For the fiscal second quarter ended Dec. 31, Arden now sees earnings of 72 cents to 76 cents a share, down from its prior view of $1 to $1.10. Sales were $365 million to $370 million. Analysts surveyed by FactSet projected $425.3 million.

Fiscal-year earnings are now seen coming in between 94 cents to $1.07 a share on sales down 4% to 5%. The company in November cut expectations to earnings of $1.50 to $1.75 a share on sales growth of 6.5% to 8.5%.

Both companies will release their quarterly results Feb. 5.

-By Anjali Cordeiro and Kevin Kingsbury, Dow Jones Newswires; 201-938-2408; anjali.cordeiro@dowjones.com

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