Physicians Formula feels economic impact despite positive Q2 results
AZUSA, Calif. Beauty company Physicians Formula posted a second quarter boost of 3.6 percent, but is feeling the impact of the weak economy as sell-through of higher-priced kits were lower than expected. Given this, the company has revised its 2008 full year guidance.
Net sales for the second quarter of 2008 were $22.9 million, an increase of 3.6 percent from $22.1 million for the same period in 2007. Net loss per diluted common share for the second quarter of 2008 was 14 cents on approximately 14.1 million diluted common shares, and included a 3-cent per share non-cash charge for stock-based compensation, net of tax. For the second quarter of 2007, net loss per diluted common share was 4 cents, and included a 2-cent per share non-cash charge for stock-based compensation, net of tax, and 3-cent per share of secondary offering costs, net of tax.
The results for the second quarter of 2008 included a provision for anticipated returns in the second half of the year, especially relating to large kit programs, with an estimated impact on gross margin of $2.9 million. The company attributes the returns in part to increased weakening consumer demand for higher-priced promotional kits.
Stated “Our 2008 promotional strategy focused on higher-priced promotional kits that have worked very well for us in the past,” chief executive officer Ingrid Jackel stated, “Given consumers’ increasing price sensitivity, the sell-through on these higher-priced kits programs this year is lower than anticipated and we are already taking steps to revert to smaller and more traditional promotional events for 2009 which will enable us to minimize promotional returns as we have done historically.”
Having achieved 13.3 percent growth in net sales for the first half of 2008, Jackel stated she is generally satisfied with the business performance. Its three major new product initiatives have contributed to its 8 percent overall market share gain, with the new Mineral Wear extensions “solidifying our ranking despite numerous competitive entries in the mineral makeup category.”
The launch of Organic wear has been well received by the trade and has achieved distribution goals, according to Jackel. As the first complete line of natural cosmetics introduced into mass channels, Organic wear is still in the very beginning stage of the product’s lifecycle requiring continued consumer education in an especially tough environment.
Based on retail sales data provided by ACNielsen, the company’s approximate share of the masstige market, as defined by Physicians Formula, was 8.1 percent for the 52 weeks ended July 12, 2008, or a gain of 8 percent when compared to 7.5 percent for the same period in the prior year. Citing a weaker demand for higher-priced promotional kits, the company is revising its full year 2008 net sales outlook to between $120 million and $123 million, representing an increase between 8 percent and 10 percent over 2007. In addition, due to the aforementioned items, the company is revising its net income per diluted common share of between 52 cents and 57 cents based on 14.9 million diluted common shares, which included an 11-cent per diluted common share non-cash charge for stock based compensation, net of tax. Net income per diluted common share was 60 cents in 2007, which included a 13-cent per diluted common share non-cash charge for stock-based compensation, net of tax. The company’s previous 2008 outlook estimated net sales to be in the range of $123 million and $125 million and net income per diluted common share to be in the range of 65 cents and 69 cents, based on 14.9 million diluted common shares.