By  on August 7, 2009

The problem-solution cosmetics firm Physicians Formula Holdings Inc. managed to reverse a year-ago loss as it eyes new markets, retail channels and products to revive its business.

For the second quarter ended June 30, the Azusa, Calif.-based company posted a net profit of $591,000, or 4 cents a diluted share, compared with a loss of $2 million, or 14 cents a share, in the year-earlier quarter. Sales during the three months declined 8 percent to $21.1 million from $22.9 million in the year-ago period.

The company attributed the sales decline to the loss of a major retail customer, as well as a pullback in promotional launches and continued inventory destocking by retailers.

For the first half, the firm reported a net loss of $1.1 million, or 8 cents a diluted share, compared with a net profit of $3 million, or 21 cents, in the year-ago period, on sales that declined 37.1 percent to $41.2 million.

Referring the loss of the retail partner, Ingrid Jackel, chairman and chief executive officer, told WWD, “The door is always open,” adding that the company presented its 2011 product lineup to the account and was encouraged by the potential opportunity of working with this retailer in the future. During the company’s earnings call Thursday evening, Jackel told analysts, “We firmly believe [the retailer’s] decision was not based on sales performance, but rather a change in strategy.”

Physicians Formula would not confirm which retailer it lost, but WWD previously reported Walgreens stopped placing orders with the beauty firm as part of a storewide mix rationalization effort.

Jackel said an aggressive onslaught of promotional activity — for instance, “buy-one-get-one-free” offers — by the brand’s competitors also impeded sales growth. She added that these brands have indicated to retailers that they will rein in promotional spending in the coming year. “That will put everybody on a more even playing field,” said Jackel.

Physicians Formula has a full pipeline of launches planned for 2010, which includes five major product platforms, said Jackel. In a bid to regain sales lost from its former account, the company has turned its sights to the food retail channel, an outlet Jackel said has high foot traffic and lower product returns. Physicians Formula distributes to 2,000 of the 16,000 food retail doors in the U.S. The company also has plans to enter certain European markets next year.

As of June 30, the company’s total net debt was $8.3 million, which was comprised of $11.8 million of debt, net of $3.5 million of cash and cash equivalents. The company negotiated a waiver and amendment with Union Bank to cure its covenant default.

The firm’s chief financial officer, Jeff Berry, said he anticipates the company’s liquidity issues will be resolved by early in the fourth quarter.

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