FACE Physicians Formula Holdings, Inc. (MM)

AZUSA, Calif., May 8 /PRNewswire-FirstCall/ -- Physicians Formula Holdings, Inc. (NASDAQ:FACE) ("Physicians Formula" or the "Company") today announced financial results for the first quarter ended March 31, 2007. First Quarter 2007 Compared to First Quarter 2006: * Net sales increased 29% to $35.7 million from $27.7 million. * Net income per diluted common share was $0.30, and includes $0.03 per share of non-cash compensation expense after tax and $0.01 per share of secondary offering costs after tax. Excluding these items, adjusted net income per diluted common share would have been $0.34 for the first quarter of 2007. "We are very pleased with our results for the first quarter. The stronger than expected sales and earnings are a direct result of a successful sell-in period for existing and new product offerings, particularly in our Mineral Wear(R) line," stated Ingrid Jackel, Chief Executive Officer of Physicians Formula. "We achieved 26% growth in retail sales in the Face category and 11% growth in retail sales in the Eye category for the 52 weeks ended March 24, 2007, as reported by ACNielsen." Ms. Jackel continued, "The increase in our overall market share of retail sales to 7.3% of the masstige market is an indication that our problem-solution based products are providing our customers with solutions to specific needs that many women of all ages and ethnicities have." "Our improved net income during the quarter reflects strong net sales growth, a 120 basis point increase in gross margins due primarily to improved inventory management, and reduced interest expense resulting from the debt refinancing we undertook in connection with our initial public offering in November 2006," commented Joseph Jaeger, Chief Financial Officer. Secondary Equity Offering On April 25, 2007, the Company completed a secondary offering of 5,049,650 shares of its common stock by certain selling stockholders. The Company did not receive any proceeds from the sale of the shares but agreed to pay the expenses of the offering, which resulted in a $0.01 per share impact on net income per diluted common share for the first quarter of 2007 and is expected to result in a cumulative $0.04 per share impact on net income per diluted common share for 2007. Outlook The Company currently anticipates net sales for the second quarter of 2007 will be in the range of approximately $24.5 million to $25.5 million, an increase of approximately 6% to 10% over the same period a year ago. Net loss per diluted common share for the second quarter of 2007 is expected to be in the range of $(0.04) to $(0.01) on approximately 14.5 million diluted common shares. The net loss per diluted common share outlook includes an estimated non-cash charge for stock-based compensation after tax of approximately $0.02 per share, as well as one-time secondary equity offering costs after tax of approximately $0.04 per share. Excluding these items, the estimated adjusted net income per diluted common share outlook would be in the range of $0.02 to $0.05 per share for the second quarter of 2007. The Company is maintaining its net sales estimate and net income per diluted common share estimate (reduced by $0.05 per share to reflect the expenses of the secondary equity offering paid by the Company) for the fiscal year ending December 31, 2007. Net sales are expected to be in the range of approximately $113 million to $116 million, an increase of approximately 19% to 22% over the same period a year ago. Net income per diluted common share for 2007 is expected to be in the range of $0.67 to $0.72 on approximately 14.5 million diluted common shares. The net income per diluted common share outlook includes an estimated non-cash charge for stock-based compensation after tax of approximately $0.10 per diluted common share, as well as the one- time secondary equity offering costs after tax of approximately $0.05 per diluted common share. Excluding these items, the estimated adjusted net income per diluted common share outlook would be in the range of $0.82 to $0.87 per share for 2007. U.S. Market Share Data ($ Share) The Company defines the masstige market as products sold in the mass market channel under the following premium-priced brands: Physicians Formula, Almay, L'Oreal, Max Factor, Neutrogena, Revlon and Vital Radiance. The following table sets forth the approximate market share, based on retail sales, of the Company's products in total and for selected categories within the masstige market, as the Company defines it, based on ACNielsen(1) data for the 52 weeks ended March 24, 2007. 52 Weeks Ended March 24, 2007 Masstige % Change ($ Share) vs. Prior Year ($ Share) Total Company 7.3% 22% Face 13.3% 26% Eye 5.3% 11% (1) ACNielsen is an independent research entity. ACNielsen data does not include Wal-Mart, which is the Company's largest customer. Non-GAAP Financial Measures Physicians Formula presents net income per diluted common share on an adjusted basis to exclude the impact of non-cash charges associated with stock-based compensation expense and certain one-time charges incurred in connection with its secondary equity offering. This presentation is not in accordance with generally accepted accounting principles in the United States ("GAAP"). The items that are excluded from adjusted net income per diluted common share are: a non-cash charge for stock-based compensation and one-time charges incurred in connection with the Company's secondary equity offering. For purposes of adjusted net income per diluted common share, the adjusted pre-tax result is adjusted for a provision for income taxes at an assumed tax rate of 40%. The Company presents adjusted net income per diluted common share because the Company believes that adjusted net income per diluted common share can facilitate a comparison of the Company's current results with the Company's historical results and provide useful information to investors on the Company's profitability without regard to certain one-time items and certain non-cash items which do not directly affect the Company's operating performance. The Company also believes that it is useful to investors to provide disclosure of the Company's results on the same basis as that used by its management. Adjusted net income per diluted common share has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for, analysis of the Company's results as reported under GAAP. Because of these limitations, adjusted net income per diluted common share should not be considered as a replacement for net income (loss) per diluted common share on a GAAP basis. The Company compensates for these limitations by relying primarily on its GAAP results and using adjusted net income per diluted common share only supplementally. A reconciliation of net income per diluted common share to adjusted net income per diluted common share in accordance with GAAP is presented below: Three Months Ended March 31, 2007 Net Income per Diluted Common Share $0.30 Adjustments to Net Income per Diluted Common Share: Secondary Offering Expense, net of tax effect 0.01 Stock-Based Compensation Expense, net of tax effect 0.03 Adjusted Net Income per Diluted Common Share $0.34 Reconciliations of net (loss) income per diluted common share outlook to adjusted net income per diluted common share outlook in accordance with GAAP are presented below: Outlook for Outlook for Three Months Ended Year Ended June 30, 2007 December 31, 2007 Net (Loss) Income per Diluted Common Share $(0.04) - (0.01) $0.67 - 0.72 Adjustments to Net (Loss) Income per Diluted Common Share: Secondary Offering Expense, net of tax effect 0.04 0.05 Stock-Based Compensation Expense, net of tax effect 0.02 0.10 Adjusted Net Income per Diluted Common Share $0.02 - 0.05 $0.82 - 0.87 Conference Call The conference call is scheduled to begin at 2:00 pm Pacific Time on Tuesday, May 8, 2007. Participants may access the call by dialing 800-817-4887 (domestic) or 913-981-4913 (international). In addition, the call will be webcast via the Company's Web site at http://www.physiciansformula.com/, Investor Relations, where it will also be archived. A telephone replay will be available through Tuesday, May 22, 2007. To access the replay, please dial 888-203-1112 (domestic) or 719-457-0820 (international), passcode 5840657. About Physicians Formula Holdings, Inc. Physicians Formula is one of the fastest growing cosmetics companies operating in the mass market prestige, or "masstige", market. Under its Physicians Formula brand name, created in 1937, the Company develops, markets and distributes innovative, premium-priced products for the mass market channel. Physicians Formula differentiates itself by addressing skin imperfections through a problem-solving approach, rather than focusing on changing fashion trends. Currently, Physicians Formula products are sold in over 26,000 stores throughout the U.S. including stores operated by Wal-Mart, Target, CVS, Walgreens and Albertsons. Safe Harbor Statement This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In some cases, forward-looking statements can be identified by words such as "anticipates," "estimates", "expects," "believes," "plans," "predicts," and similar terms. These forward-looking statements are based on current expectations, estimates and projections about the Company's business and its industry, based on management's beliefs and assumptions. Forward-looking statements are not guarantees of future performance and the Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to: the demand for the Company's products; the Company's ability to expand its product offerings; the competitive environment in the Company's business; the Company's operations and ability to achieve cost savings; the effect of technological and regulatory changes; the Company's cash needs and financial performance; changes in general economic or market conditions; and other factors discussed in the Company's filings with the Securities and Exchange Commission (the "SEC"), including the Risk Factors contained in the Company's Annual Report on Form 10-K for the year ended December, 31, 2006, filed March 16, 2007, and available at http://www.physiciansformula.com/ and the SEC's website at http://www.sec.gov/. You are urged to consider these factors carefully in evaluating the forward-looking statements in this release and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement. Unless otherwise required by law, the Company expressly disclaims any obligation to update publicly any forward-looking statements, whether as result of new information, future events or otherwise. PHYSICIANS FORMULA HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (dollars in thousands, except per share data) Three Months Ended March 31, 2007 2006 NET SALES $35,723 $27,689 COST OF SALES 15,102 12,039 GROSS PROFIT 20,621 15,650 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 13,110 9,950 INCOME FROM OPERATIONS 7,511 5,700 INTEREST EXPENSE 404 1,771 OTHER INCOME (5) (22) INCOME BEFORE INCOME TAXES 7,112 3,951 PROVISION FOR INCOME TAXES 2,810 1,536 NET INCOME $4,302 $2,415 NET INCOME PER COMMON SHARE: Basic $0.31 $0.23 Diluted $0.30 $0.21 WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING: Basic 13,866,389 10,352,892 Diluted 14,537,147 11,531,629 PHYSICIANS FORMULA HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (dollars in thousands, except share data) March 31, December 31, 2007 2006 ASSETS CURRENT ASSETS: Cash and cash equivalents $21 $26 Accounts receivable, net of allowance for bad debts of $364 and $348 29,009 26,654 Inventories 21,197 23,472 Prepaid expenses and other current assets 1,601 1,775 Deferred income taxes - net 5,958 5,139 Total current assets 57,786 57,066 PROPERTY AND EQUIPMENT - Net 2,775 2,506 OTHER ASSETS - Net 1,093 968 INTANGIBLE ASSETS - Net 55,870 56,311 GOODWILL 17,463 17,463 TOTAL $134,987 $134,314 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $10,468 $12,670 Accrued expenses 1,513 1,915 Trade allowances 3,791 3,479 Sales returns reserve 10,462 9,440 Income taxes payable 3,656 378 Line of credit borrowings 2,262 7,522 Current portion of long-term debt 2,250 2,063 Total current liabilities 34,402 37,467 DEFERRED COMPENSATION 753 721 DEFERRED INCOME TAXES - Net 21,123 21,617 LONG-TERM DEBT 12,375 12,937 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Series A preferred stock, $.01 par value - 10,000,000 shares authorized, 0 and 0 shares issued and outstanding -- -- Common stock, $.01 par value - 50,000,000 shares authorized, 13,927,055 and 13,843,056 shares issued and outstanding 139 138 Additional paid-in capital 57,506 57,047 Retained earnings 8,689 4,387 Total stockholders' equity 66,334 61,572 TOTAL $134,987 $134,314 (FACE/F) Contact: John Mills / Anne Rakunas Integrated Corporate Relations, Inc. (310) 954-1100 DATASOURCE: Physicians Formula Holdings, Inc. CONTACT: John Mills or Anne Rakunas, both of Integrated Corporate Relations, Inc., +1-310-954-1100, for Physicians Formula Holdings, Inc. Web site: http://www.physiciansformula.com/

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