Delivers First Quarter Earnings of $0.03 per
Diluted Common Share and Adjusted EBITDA of $3.1 Million, Ahead of
Expectations
First Quarter 2011 Net Sales Declined 8.0% versus
First Quarter 2010 to $21.1 Million, Which Includes a Mid-Single
Digit Increase in Gross Sales More Than Entirely Offset by
Increases in Co-Operative Advertising and Retail Marketing
Investments, Both Included in the Calculation of Net Sales
2011 New Product Success Has Made Physicians
Formula The Fastest Growing U.S. Color Cosmetics Brand in FDMx
Among the Top Eight Cosmetics Brands According to AC Nielsen FDMx
12 Week Data as of April 16, 2011
Physicians Formula Holdings, Inc. (Nasdaq:FACE) ("Physicians
Formula" or the "Company") today announced financial results for
the three months ended March 31, 2011.
Results for the First Quarter 2011
Net sales for the first quarter 2011 were $21.1 million,
compared to $23.0 million for the same period in 2010. Gross sales
increased in the mid-single digits versus the same period in 2010.
The increase in gross sales was more than entirely offset by
significantly higher co-operative advertising and retail marketing
investments, both contra-revenue items, which were implemented to
increase brand awareness and trial of the Company's promising 2011
new products. As a result of the increased investments
accounted for as contra-revenue, net sales declined 8.0% versus the
first quarter of 2010.
Gross margin for the first quarter of 2011 was 48.6% versus
43.4% in the same period last year. The driver of the increase
in gross margin was favorable cost performance, notably in the
reduction in the Company's usage of air freight to expedite raw
materials and components to its facilities.
Selling, general and administrative ("SG&A") expenses for
the first quarter of 2011 were $8.8 million compared to $8.6
million in 2010, an increase of $0.2 million. The driver of
the increased SG&A expense was higher marketing expense, again
to increase brand awareness and trial of the Company's promising
2011 new products, largely offset by lower variable freight and
warehousing expenses.
Net income for the first quarter of 2011 was $0.5 million, or
$0.03 per diluted common share. This compares to net income of
$0.5 million, or $0.04 per diluted common share, for the first
quarter of 2010. Net income was essentially flat versus the
prior year period, driven by higher income from operations due to
the factors mentioned above, as well as lower interest
expense. These factors were offset by a higher provision for
income taxes.
For the first quarter of 2011, Adjusted Earnings Before
Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA"),
as calculated in accordance with the Company's credit agreements,
was $3.1 million versus $3.2 million for the prior year
period. The primary drivers of the year-over-year change in
Adjusted EBITDA for the first quarter of 2011 were flat net income,
lower addbacks for interest expense, stock based compensation and
obsolescence charges, and higher addbacks for depreciation and tax
expense.
Ingrid Jackel, Chairwoman and CEO, stated, "Our first quarter
results are ahead of our expectations at both the top and bottom
lines. Our 2011 new products have performed even better since
our year-end earnings release in March, and, in April, we once
again returned to our legacy of being the fastest growing U.S.
color cosmetics brand among the top eight brands according to AC
Nielsen twelve week data as of April 16, 2011. As a result,
our masstige market share increased from 5.8% at year-end 2010 to
6.8% at the end of the first quarter."
Ms. Jackel continued, "We have also made further progress on our
business model redefinition. We have signed a Letter of Intent with
a third party logistics provider to outsource our warehousing and
distribution function, which we plan on implementing in the third
quarter. We have also redefined our forecasting and
procurement processes, which has minimized the use of air freight
to expedite raw materials to our facilities. As a result, our
cost performance in the first quarter was strong, as evidenced by
our large increase in gross margin."
Balance Sheet and Liquidity
Net cash provided by operating activities for the first quarter
of 2011 was $2.0 million. As of March 31, 2011, net debt was
$8.4 million, which was comprised of $0.8 million of line of credit
borrowings and $7.6 million of subordinated long-term
debt.
During the first quarter of 2010, net cash provided by operating
activities was $2.8 million. As of March 31, 2010, total net
debt was $12.6 million, which was comprised of $8.0 million of line
of credit borrowings and $8.1 million of long-term debt, net of
$3.5 million of cash and cash equivalents.
As of March 31, 2011, the availability on the line of credit was
$18.8 million. The Company also noted that it was in
compliance with all of its financial covenants at the end of the
first quarter of 2011.
Net cash provided by operating activities in the first quarter
of 2011 was lower than the prior year period primarily due to
increased brand investments, lower Accounts Receivable driven by
increased contra-revenue items for which customers deduct from
their invoices, and reductions in Accounts Payable.
Outlook
Ms. Jackel commented, "The first quarter results are ahead of
our expectations, and we are reiterating our previously announced
full year guidance at this time."
Conference Call
The conference call is scheduled to begin at 2:00 p.m. Pacific
Time on Thursday, May 5, 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, May 19, 2011.
To access the replay, please dial (877) 870-5176 (domestic) or
(858) 384-5517 (international), passcode 371198.
About Physicians Formula Holdings, Inc.
Physicians Formula is an innovative cosmetics 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
RiteAid.
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 March 31, |
|
|
2011 |
2010 |
NET SALES |
|
$ 21,138 |
$ 22,966 |
COST OF SALES |
|
10,870 |
12,995 |
GROSS PROFIT |
|
10,268 |
9,971 |
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES |
8,819 |
8,623 |
INCOME FROM OPERATIONS |
1,449 |
1,348 |
INTEREST EXPENSE, NET |
595 |
661 |
OTHER INCOME |
|
(12) |
(10) |
INCOME BEFORE PROVISION FOR
INCOME TAXES |
866 |
697 |
PROVISION FOR INCOME TAXES |
415 |
177 |
NET INCOME |
|
$ 451 |
$ 520 |
|
|
|
|
NET INCOME PER COMMON SHARE: |
|
|
Basic |
|
$ 0.03 |
$ 0.04 |
Diluted |
|
$ 0.03 |
$ 0.04 |
|
|
|
|
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING: |
|
|
Basic |
|
13,589,668 |
13,589,668 |
Diluted |
|
14,843,060 |
14,058,710 |
|
PHYSICIANS FORMULA
HOLDINGS, INC. |
CONDENSED CONSOLIDATED
BALANCE SHEETS |
(Unaudited) |
(Dollars in
thousands) |
|
|
|
|
|
|
|
March 31,
2011 |
December 31,
2010 |
ASSETS |
|
|
CURRENT ASSETS: |
|
|
Cash and cash equivalents |
$ 3 |
$ 110 |
Accounts receivable, net |
25,044 |
24,394 |
Inventories |
23,569 |
23,305 |
Prepaid expenses and other current
assets |
1,877 |
2,234 |
Income taxes receivable |
228 |
294 |
Deferred tax assets, net |
7,903 |
7,649 |
Total current assets |
58,624 |
57,986 |
|
|
|
PROPERTY AND EQUIPMENT, NET |
3,046 |
3,056 |
OTHER ASSETS, NET |
6,251 |
5,480 |
INTANGIBLE ASSETS, NET |
31,810 |
32,251 |
TOTAL ASSETS |
$ 99,731 |
$ 98,773 |
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
CURRENT LIABILITIES: |
|
|
Accounts payable |
$ 8,198 |
$ 9,061 |
Accrued expenses |
2,661 |
2,834 |
Trade allowances |
10,603 |
6,293 |
Sales returns reserve |
8,150 |
10,700 |
Income taxes payable |
459 |
535 |
Line of credit borrowings |
842 |
1,406 |
Total current liabilities |
30,913 |
30,829 |
|
|
|
DEFERRED TAX LIABILITIES, NET |
8,814 |
8,738 |
RELATED PARTY LONG-TERM DEBT |
7,641 |
7,525 |
OTHER LONG-TERM LIABILITIES |
519 |
503 |
Total liabilities |
47,887 |
47,595 |
|
|
|
STOCKHOLDERS' EQUITY: |
|
|
Series A preferred stock |
-- |
-- |
Common stock |
136 |
136 |
Additional paid-in capital |
62,145 |
61,930 |
Accumulated deficit |
(10,437) |
(10,888) |
Total stockholders' equity |
51,844 |
51,178 |
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY |
$ 99,731 |
$ 98,773 |
|
|
|
PHYSICIANS FORMULA HOLDINGS,
INC.
RECONCILIATION OF NET 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, net, provision (benefit) for 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, provision (benefit) for income taxes and intangible asset
impairment, 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 income to EBITDA and Adjusted EBITDA
follows (in thousands):
|
Three
Months Ended March 31, |
|
2011 |
2010 |
Net income |
$ 451 |
$ 520 |
Plus: |
|
|
Depreciation and
amortization |
1,194 |
1,114 |
Interest expense, net |
595 |
661 |
Provision for income
taxes |
415 |
177 |
EBITDA |
2,655 |
2,472 |
Stock-based compensation |
222 |
297 |
Non-cash inventory obsolescence
charges |
260 |
453 |
Adjusted EBITDA |
$ 3,137 |
$ 3,222 |
(FACE/F)
CONTACT: Anne Rakunas
ICR, Inc.
(310) 954-1100
Physicians Formula Holdings, Inc. (MM) (NASDAQ:FACE)
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