Second Quarter 2011 Net Sales Were Up 0.5% Versus
the Year Ago Period, Including a High Single Digit Increase in
Gross Sales
Generates Loss per Common Share of $(0.02) and
Adjusted EBITDA of $1.4 Million in the Second Quarter of 2011,
Slightly Ahead of Management Expectations
Company Ships New Skin Care Line Starting in June
2011 to Approximately 2,500 Wal-Mart Doors
Physicians Formula Holdings, Inc. (Nasdaq:FACE) ("Physicians
Formula" or the "Company") today announced financial results for
the three and six months ended June 30, 2011.
Results for the Second Quarter of 2011
Net sales were $20.9 million for the second quarter of 2011,
compared to $20.8 million for the same period in 2010, an increase
of 0.5%. Contributing to net sales was a high single digit increase
in gross sales versus the same period in 2010, which was driven by
strong 2011 new product performance, including the initial shipment
of the Company's new skin care line to approximately 2,500 Wal-Mart
doors in June 2011, as well as solid growth in the Company's base
product line. Also, returns expense, a contra-revenue item,
improved from 12.0% of net sales in the year ago period to 8.5% of
net sales in the current quarter.
The increase in gross sales and the improvement in returns
expense were almost entirely offset by $2.7 million in increased
consumer and trade promotion spending captured in contra-revenue,
explaining the essentially flat quarter-over-quarter net sales
performance. The increases to consumer and trade promotions
spending included significantly higher coupon, co-operative
advertising and retail marketing expenses, which the Company noted
were implemented to increase brand awareness and trial of the
Company's successful 2011 new products.
Gross margin for the second quarter of 2011 was 48.4% of net
sales versus 52.9% in the prior year period. The Company noted
that the quarter-over-quarter decline in gross margin was primarily
driven by the increased consumer and trade promotion spending
mentioned above, partially offset by the benefits of an
approximately $0.8 million reduction in operations costs in the
current quarter, notably a reduction in air freight expense for
inbound raw materials and components.
Selling, general and administrative expenses ("SG&A") were
$10.0 million for the second quarter of 2011 versus $8.7 million
for the prior year period, an increase of $1.3 million. The
driver of the quarter-over-quarter increase in SG&A expenses
was $1.3 million in higher planned consumer marketing expenses,
also consistent with the Company's 2011 investment strategy.
The net loss for the second quarter of 2011 was $(0.3) million,
or $(0.02) per common share. This compares to net income of
$1.4 million, or $0.09 per diluted common share for the second
quarter of 2010. Net income decreased from the prior year
period primarily due to the $2.7 million in higher consumer and
trade promotion spending captured in contra-revenue, as well as the
$1.3 million in higher marketing expenses captured in
SG&A. The impact of this total $4.0 million increase in
trade promotion and marketing spending is approximately $0.16 of
earnings per diluted common share, net of tax.
Adjusted Earnings Before Interest, Taxes, Depreciation and
Amortization ("Adjusted EBITDA") for the second quarter of 2011, as
calculated by its lenders in the Company's credit agreements, was
$1.4 million, which is $2.2 million lower than the $3.6 million of
Adjusted EBITDA in the second quarter of 2010. The decline in
Adjusted EBITDA was also primarily driven by the increase in trade
promotion and marketing spending, and is reconciled to the net loss
in the financial tables at the end of this press release.
Ingrid Jackel, Chairwoman and CEO of Physicians Formula, stated,
"We are pleased with our second quarter results, which were
slightly ahead of management's expectations. We are
particularly excited by the fact that our investment strategy is
working, as evidenced by the facts that our gross sales expanded in
the high single digits and a significant number of new consumers
purchased the brand since the beginning of the year. Based on the
year-to-date success of our investment strategy, we have decided to
increase our investments in the back half of 2011 relative to our
original plan."
Ms. Jackel continued, "We are also excited that our new skin
care line began to ship to approximately 2,500 Wal-Mart doors in
June, and we expect it to be on shelf by mid-August. This is a
major strategic development for us, and we are very proud to have
been chosen by Wal-Mart to partner with them in developing these
best-in-class products. This demonstrates the strong
innovation capabilities of our Company, and it also creates new
financial opportunities and risk diversification for us."
Results for the First Six Months of 2011
Net sales for the first six months of 2011 were $42.0 million,
compared to $43.7 million for the same period in 2010, a decrease
of 3.9%. Gross sales were up in the mid-single digits, but
this was more than offset by increases in consumer and trade
promotion spending captured in contra-revenue, again consistent
with the Company's investment strategy.
Net income for the first six months of 2011 was $0.1 million, or
$0.01 per diluted common share. This compares to net income of
$1.9 million, or $0.13 per diluted common share, for the first six
months of 2010. The driver of the reduced earnings was the planned
increase in trade promotion and marketing investments, which,
including those captured as contra-revenue items and in SG&A,
increased $6.8 million versus the prior year, or approximately
$0.28 of earnings per diluted common share, net of tax.
For the first half of 2011, Adjusted EBITDA was $4.5 million
versus $6.9 million for the prior year period. The drivers of
the year-over-year reduction in Adjusted EBITDA for the first half
were the same as those impacting the lower earnings.
Liquidity Considerations
Net cash provided by operating activities for the first six
months of 2011 was $0.2 million. As of June 30, 2011, net debt
was $11.7 million, which was comprised of $4.0 million of line of
credit borrowings and $7.8 million of subordinated long-term debt,
net of $0.1 million of cash and cash equivalents.
During the first six months of 2010, net cash provided from
operating activities was $1.6 million. As of June 30, 2010,
total net debt was $13.2 million, which was comprised of $7.9
million of line of credit borrowings, and $7.2 million of
subordinated long-term debt, net of $1.9 million of cash and cash
equivalents.
As of June 30, 2011, the availability on the line of credit was
$9.6 million. The Company also noted that it was in compliance
with all of its financial covenants at the end of the second
quarter.
Outlook
The Company is reaffirming its 2011 fiscal year outlook. It
continues to expect net sales to grow in the low single digits
versus 2010, net loss per common share to be between $(0.04) and
$(0.14) and net cash from operating activities to be positive for
the year.
Ms. Jackel commented, "Based on the success of our investment
strategy, the first half results have been slightly more positive
than we expected. However, the consumer environment is
uncertain, causing us to be conservative in our outlook for the
remainder of the year."
Conference Call
The conference call is scheduled to begin at 2:00 p.m. Pacific
Time on Thursday, August 4, 2011. Participants may access the call
by dialing (877) 407-4018 (domestic) or (201) 689-8471
(international). In addition, the call will be webcast via the
Company's Web site at www.physiciansformula.com, Investor
Relations, where it will also be archived for two weeks. A
telephone replay will be available through Thursday, August 18,
2011. To access the replay, please dial (877) 870-5176 (domestic)
or (858) 384-5517 (international), passcode 375947.
About Physicians Formula Holdings, Inc.
Physicians Formula is an innovative cosmetics and skin care
company 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 25,700 stores including those operated by Wal-Mart, Target,
CVS and Rite Aid.
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. In particular,
this press release may include forward-looking statements about
management's expectations regarding the Company's refinancing,
strategy, liquidity, financial performance and outlook. 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
loss of any significant retailer customers; 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; the Company's ability to comply
with the financial covenants in its debt agreements; 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 filings with the SEC, and available at
www.physiciansformula.com and the SEC's website at 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 OPERATIONS |
(Unaudited) |
(Dollars in thousands,
except share data) |
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, |
Six
Months Ended June 30, |
|
2011 |
2010 |
2011 |
2010 |
NET SALES |
$ 20,868 |
$ 20,761 |
$ 42,006 |
$ 43,727 |
COST OF SALES |
10,773 |
9,777 |
21,643 |
22,772 |
GROSS PROFIT |
10,095 |
10,984 |
20,363 |
20,955 |
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES |
10,034 |
8,652 |
18,853 |
17,275 |
INCOME FROM OPERATIONS |
61 |
2,332 |
1,510 |
3,680 |
INTEREST EXPENSE, NET |
631 |
611 |
1,226 |
1,272 |
OTHER (INCOME) EXPENSE |
(1) |
22 |
(13) |
12 |
(LOSS) INCOME BEFORE (BENEFIT) PROVISION
FOR INCOME TAXES |
(569) |
1,699 |
297 |
2,396 |
(BENEFIT) PROVISION FOR INCOME TAXES |
(241) |
333 |
174 |
510 |
NET (LOSS) INCOME |
$ (328) |
$ 1,366 |
$ 123 |
$ 1,886 |
|
|
|
|
|
NET (LOSS) INCOME PER COMMON SHARE: |
|
|
|
|
Basic |
$ (0.02) |
$ 0.10 |
$ 0.01 |
$ 0.14 |
Diluted |
$ (0.02) |
$ 0.09 |
$ 0.01 |
$ 0.13 |
|
|
|
|
|
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING: |
|
|
|
Basic |
13,590,899 |
13,589,668 |
13,590,287 |
13,589,668 |
Diluted |
13,590,899 |
14,479,442 |
14,891,863 |
14,268,318 |
|
PHYSICIANS FORMULA
HOLDINGS, INC. |
CONDENSED CONSOLIDATED
BALANCE SHEETS |
(Unaudited) |
(Dollars in
thousands) |
|
|
|
|
|
|
|
June 30,
2011 |
December
31, 2010 |
ASSETS |
|
|
CURRENT ASSETS: |
|
|
Cash and cash equivalents |
$ 113 |
$ 110 |
Accounts receivable, net |
17,536 |
24,394 |
Inventories |
23,870 |
23,305 |
Prepaid expenses and other current
assets |
1,218 |
2,234 |
Income taxes receivable |
636 |
294 |
Deferred tax assets, net |
7,388 |
7,649 |
Total current assets |
50,761 |
57,986 |
|
|
|
PROPERTY AND EQUIPMENT, NET |
2,905 |
3,056 |
OTHER ASSETS, NET |
5,929 |
5,480 |
INTANGIBLE ASSETS, NET |
31,369 |
32,251 |
TOTAL ASSETS |
$ 90,964 |
$ 98,773 |
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
CURRENT LIABILITIES: |
|
|
Accounts payable |
$ 7,221 |
$ 9,061 |
Accrued expenses |
1,673 |
2,834 |
Trade allowances |
5,573 |
6,293 |
Sales returns reserve |
4,023 |
10,700 |
Income taxes payable |
-- |
535 |
Line of credit borrowings |
4,017 |
1,406 |
Total current liabilities |
22,507 |
30,829 |
|
|
|
DEFERRED TAX LIABILITIES, NET |
8,469 |
8,738 |
RELATED PARTY LONG-TERM DEBT |
7,764 |
7,525 |
OTHER LONG-TERM LIABILITIES |
523 |
503 |
Total liabilities |
39,263 |
47,595 |
|
|
|
STOCKHOLDERS' EQUITY: |
|
|
Series A preferred stock |
-- |
-- |
Common stock |
136 |
136 |
Additional paid-in capital |
62,330 |
61,930 |
Accumulated deficit |
(10,765) |
(10,888) |
Total stockholders' equity |
51,701 |
51,178 |
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY |
$ 90,964 |
$ 98,773 |
PHYSICIANS FORMULA HOLDINGS,
INC. RECONCILIATION OF NET (LOSS) INCOME TO
ADJUSTED EBITDA (Unaudited)
(Dollars in thousands)
Pursuant to our credit agreements, Adjusted EBITDA is defined as
net income/loss before depreciation, amortization, interest
expense, income taxes, goodwill and intangible asset impairment
charges, stock-based compensation and non-cash inventory
obsolescence charges.
Adjusted EBITDA is a financial measure not computed in
accordance with United States generally accepted accounting
principles, or GAAP. The Company believes that this non-GAAP
measure, when presented in conjunction with comparable GAAP
measures, is useful to both management and investors in analyzing
the Company's ongoing business and operating performance. The
Company believes that providing the non-GAAP information to
investors, in addition to the GAAP presentation, allows investors
to view the Company's financial results in the way that management
views financial results. Management believes Adjusted EBITDA
is useful as a supplemental measure of the Company's financial
results because it removes costs not related to the Company's
operating performance. Management believes that Adjusted
EBITDA should be considered in addition to, but not as a substitute
for items presented in accordance with GAAP that are presented in
this press release. With the exception of net interest expense
and the provision (benefit) for income taxes, the reconciling items
are components within cost of sales and selling, general and
administrative expenses on the Company's accompanying condensed
consolidated statements of operations.
A reconciliation of net (loss) income to EBITDA and Adjusted
EBITDA follows (in thousands):
|
Three
Months Ended June 30, |
Six
Months Ended June 30, |
|
2011 |
2010 |
2011 |
2010 |
Net (loss) income |
$ (328) |
$ 1,366 |
$ 123 |
$ 1,886 |
Plus: |
|
|
|
|
Depreciation and
amortization |
1,234 |
1,112 |
2,428 |
2,226 |
Interest expense, net |
631 |
611 |
1,226 |
1,272 |
(Benefit) provision for income
taxes |
(241) |
333 |
174 |
510 |
EBITDA |
1,296 |
3,422 |
3,951 |
5,894 |
Stock-based compensation |
157 |
317 |
379 |
614 |
Non-cash inventory obsolescence
charges |
(58) |
(102) |
202 |
351 |
Adjusted EBITDA |
$ 1,395 |
$ 3,637 |
$ 4,532 |
$ 6,859 |
(FACE/F)
CONTACT: John Mills / Anne Rakunas
ICR, Inc.
(310) 954-1113
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