BEAUTY CARE

Alberto Culver reports Q4 earnings

BY Antoinette Alexander

MELROSE PARK, Ill. Alberto Culver, whose brands include Nexxus, St. Ives and TRESemme, posted fourth-quarter sales that were essentially flat, compared with the prior year and earnings per share relatively in line with expectations — results that at least one industry observer viewed as “solid” in light of a tough comparison and heightened competitive activity.

Sales for the fourth quarter totaled $385.2 million, compared with $386 million in the year-ago period. Organic sales for the fourth quarter rose 2.7%.

Diluted earnings per share from continuing operations were 32 cents, compared with 20 cents in the year-ago period. Excluding restructuring and discrete items, earnings per share increased 6.5% to 33 cents per share in the current quarter.

“Fiscal year 2009 was another successful year for Alberto Culver. We generated strong organic sales and earnings growth in a very difficult environment, continued to strengthen our hair care market shares and we’re exiting fiscal year 2009 in a very strong financial position,” stated V. James Marino, president and CEO.

According to Morgan Stanley analyst Dara Mohsenian, earnings per share of 33 cents were a penny above consensus but in-line with Mohsenian’s estimate, with reinvestment of gross profit upside on higher than expected gross margins back into marketing.

“While near-term fundamentals have lowed with tough comparisons and a heightened promotional environment, we expect improving results in 2010 as Alberto Culver benefits from easier comparisons (post Q1), lower commodity costs and a margin benefit from its new Jonesboro [Arkansas] facility,” stated Mohsenian in a research note.

Mohsenian also stated that Alberto has “significant international expansion opportunity from both a geographic and a brand standpoint in its hair care business” and estimates that expansion into new international markets could drive 250 to 300 basis points of long-term revenue growth contribution.

Alberto competes in seven of the top 20 global hair care markets, which represent 30% of the roughly $64 billion global hair care market, or 16% of the international market excluding the United States.

Mohsenian also believes that hypothetical acquisitions could drive higher returns based on the company’s historical track record with acquisitions and a favorable merger and acquisition environment for acquirers.

“We have no knowledge of any potential acquisitions, and we are unaware of any comments by management regarding a sale of the company. That said, in November 2006, Alberto split itself into two companies, Sally Beauty Holdings and Alberto-Culver, and issued a $25 per share dividend to its shareholders. This split-up suggests to us that the company could be receptive to further consider strategic options at some point,” stated Mohsenian. “However, Alberto is installing SAP worldwide and recently opened a new manufacturing facility in Jonesboro, Ark., in early 2008, which suggests that it may not aggressively pursue strategic options near term.”

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What’s Hot: A hot mocha espresso for hair

BY DSN STAFF

NEW YORK —Consumers are hooked on mocha espresso—for their hair.

Vogue International is making waves in hair care with its Organix line of hair care products that contain organic active ingredients and are sulfate- and paraben-free. Originally launched in 2007, with about 20 SKUs, the line now features more than 50 SKUs.

The collection, currently sold in such retailers as CVS, Target, Walgreens and Duane Reade, includes such fragrances as coconut milk, shea butter, cucumber yogurt, pomegranate green tea and mocha espresso. In fact, beauty buffs appear to be addicted to mocha espresso.

According to data provided by Information Resources Inc., while category sales for regular shampoo and conditioner for the 52 weeks ended Sept. 6 at food, drug and mass (excluding Walmart) slipped 3.5% and 5%, respectively, sales of Organix mocha espresso shampoo rose 152%, and sales of Organix mocha espresso conditioner rose 182% during that same period.

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Cosmeceuticals help beautify segment’s bottom line

BY Antoinette Alexander

Serving as yet another indication that beauty shoppers are hungry for products that promise to turn back the hands of time is a recent report by IBISWorld, a provider of industry and market research, that found that the niche market of cosmeceuticals is a growth opportunity in a mature industry.

“The development of new product categories, like cosmeceuticals and dermacosmetics, has grown considerably in the last five years, driven by America’s obsession with antiaging and wellness,” stated Toon van Beeck, senior analyst with IBISWorld. “Companies are taking the opportunity to manufacture more of these high-market products, which typically generate profits greater than the industry average of 10%.”

According to IBISWorld, while the $60.37 billion cosmetics industry is on track to decline 1.2% in 2009, the niche market of cosmeceuticals is expected to increase 7.7%. Now accounting for $3.5 billion in revenue, cosmeceuticals have become a prospective growth area for businesses operating in the mature cosmetics industry, the firm noted.

By 2011, IBISWorld predicted the industry will surpass $4 billion, and will continue to grow at nearly double-digit rates for quite some time. Fueling the growth will be the perceived health advantages of cosmeceuticals, as well as the traditional cosmetic benefits.

Retailers, from department stores to big-box retailers, have taken notice, increasingly shelving such products as antiwrinkle creams, bleaching agents and medication lotions. For example, available at CVS’ high-end Beauty360 concept is the Bioelements line of professional skin care that includes Power Peptide, Lutein indoor protective day cream and Oxygen Cocktail. Prices range from about $27 to $62.

IBISWorld noted that cosmeceuticals command a premium price because consumers perceive the ingredients as being expensive and uniquely manufactured, with research and development accounting for the majority of costs. However, R&D represents about 2% of the industry’s cost structure, while the selling, general and administrative costs represent 21%.

“Manufacturers and retailers will continue to fuel demand for cosmeceuticals by developing and marketing a steady stream of new products,” van Beeck stated. “New products in the pipeline present solid opportunities to bolster bottom lines and build customer loyalty, reinventing the mature cosmetics industry.”

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