Shares of Physicians Formula Holdings Inc. shed more than half their value Monday after the firm reported a first-quarter loss and warned that one of its chief customers will drop its products from shelves next year.

This story first appeared in the May 12, 2009 issue of WWD. Subscribe Today.

For the quarter ended March 31, the Azusa, Calif.-based masstige firm reported a loss of $1.7 million, or 13 cents a diluted share, versus net income of $5 million, or 34 cents, in the 2008 period. Sales in the three months fell 52.7 percent to $20.2 million from $42.7 million a year earlier.

The company attributed the drop in net sales to large pipeline orders from new retail customers in the prior-year period, tight inventory controls due to the weak retail environment and a planned decrease in promotions.

Chief executive officer Ingrid Jackel stressed that the company’s retail sell-throughs, which declined in the midsingle digits, did not suffer as badly as its net sales in the quarter.

The company also revealed Monday that one of its largest retail customers, which accounted for 15.8 percent of its gross sales last year, decided in April to discontinue Physicians Formula at its stores in 2010.

Jackel declined to name the retailer, but told WWD the discontinuance was a surprise.

“All our accounts are very sophisticated, and so are we, in measuring performance year-over-year,” she said. “If you look at sheer performance, there is no reason that you wouldn’t want us in your stores.”

Although Jackel declined to name the retailer in question, reports have been circulating in the market that Walgreens was on the verge of dropping Physicians Formula. Visits to some stores revealed that the line was being marked down considerably. A spokeswoman at Walgreens could not be reached for comment at press time.

The news sent shares reeling Monday, falling $1.88, or 53.1 percent, to close at $1.66.

Jackel warned that the loss would begin to impact the company as early as its current quarter, as the unnamed retailer begins to reduce 2009 inventory.

She added that Physicians Formula will be better off in the second half of the year, as it will have had time to plan spending and programs. Its other retail partners have shown interest in picking up market share, she said.

“I’m not sure we’ll be able to make up for that much [in sales] with enhanced programs with other retailers, but we’re confident that we can narrow the gap,” Jackel said.