Physicians Formula Looks To Capitalize On Natural Cosmetics Trend In 2008

Physicians Formula's Organic Wear cosmetic collection could represent more than 30 percent of the company's product portfolio by 2010, CEO Ingrid Jackel said during a third-quarter analyst call Nov. 18.

Estimated to be the company's biggest launch to date, Organic Wear is being well received by retailers across the country, the exec said; the line is expected to roll out in 2008.

The "100% natural organic certified" brand is being promoted as the "first Ecocert-certified" range to debut in the U.S. mass market and is expected to capture the large and rapidly growing demographic of natural consumers, according to Jackel.

"We believe our new organic line is truly unique and in keeping with our philosophy of innovation," she said.

Organic Wear is one of three initiatives expected to drive growth in shelf space and overall distribution of the brand in 2008, according to the firm.

Physicians Formula also is growing its successful Mineral Wear line and is rejuvenating its eye makeup category "through not only unique concepts, but also a new innovative packaging and merchandising," according to Jackel.

After discussing its new initiatives with retailers, "commitments for space allocation so far are within our expectations," the exec added.

"We introduced our new planogram, analyzed the brand's productivity at each retailer, and highlighted the value proposition of the Physicians Formula brand," she noted. "The majority of retailers have now made their new planogram decisions, and we have a very good picture of what our new space allocations will be for 2008."

Jackel also addressed the firm's distribution expansion, noting that with its recent entry in Costco doors it will be marketed in a total of about 27,000 doors by the end of 2007. In March, the brand was in about 26,000 doors (¹ (Also see "Newly Public Physicians Formula Links 2006 Growth To Expansion In Masstige" - HBW Insight, 19 Mar, 2007.), p. 11).

"We will be adding additional doors in 2008 while we still have plenty of room to grow to reach the over 48,000 doors our competitors are in," Jackel said.

Physicians Formula expects fourth-quarter net revenues to be in the range of $31 million to $33 million, an increase of 17 percent to 25 percent, while net earnings per diluted common share will be $0.25 to $0.31, lower than prior estimates.

For full-year 2007, net revenue will be $108 million to $111 million, an increase of 13 percent to 18 percent, the firm projects. Net earnings per diluted common share will be $0.52 to $0.58.

In the third quarter, Physicians Formula reported a net sales increase of 9.4 percent to $19.8 million. "Our increase reflects strong growth in our Mineral Wear face makeup products, which was partially offset by lower-than-anticipated sales of our eye makeup products," Jackel said.

"In the third quarter, we continued to be one of the fastest-growing brands in the masstige market even though our performance was partially offset by a continued soft consumer spending environment" and a change in the replenishment patterns of basic stock of a top drug retailer, she continued.

Quoting ACNielsen data, Jackel said the brand's sell-though in food, drug and mass retail grew 13 percent, versus 2 percent for the overall industry.

"In addition, we continued to achieve market share gains with our total share of the masstige market at 7.7 percent for the 52 weeks to Oct. 6, up from the 6.8 percent for the corresponding period in September," the exec said.

"We continue to lead and grow our shares of our core face makeup segments with a number one position in bronzers with 69.2 percent share, up 10 percent," and "a number one position in face powders with a 40.1 percent market share, up 16 percent from prior year," Jackel added, quoting ACNielsen.

Net income for the quarter was $102 million, versus $223 million in the prior-year quarter, though the performance beat some analyst expectations. Earnings in part reflected a soft consumer spending market.

- Eileen Francis ([email protected])