|
Cosmetics Firm Dolls Itself Up For Nasdaq Debut |
|
BY AMY REEVES |
|
Bare Escentuals Inc., (415) 489-5000, bareescentuals.com |
|
Lead underwriters: |
|
THE BUZZ |
|
For the last nine years, Bare Escentuals CEO Leslie Blodgett has been like a superpowered Avon (AVP) lady. |
|
Blodgett attracts several million viewers with her regular show on the QVC home shopping network. She offers health and beauty tips and sells her company's brands, which include the firm's namesake as well as i.d. BareMinerals and RareMinerals. |
|
But the brands are rapidly expanding beyond their cult following. Under Blodgett's leadership, annual sales boomed from a mere $65 million in 2002 to $259 million last year. |
|
Sounds like a new startup, right? Actually, no. When Blodgett took over in 1995, the company was already 19 years old and had seen its share of troubles. Thanks to that, and to a 2004 leveraged buyout, Bare Escentuals is up to its immaculately plucked eyebrows in debt. |
|
Still, the dynamic growth rate is remarkable compared with most companies in Bare Escentuals' position, says President Francis Gaskins of IPO Desktop. |
|
"It's an example of a leveraged buyout that really works to the benefit of stockholders," he said. "They've really stripped the company, but they've made up for it with the brand momentum, the growth and the profitability." |
|
THE COMPANY |
|
Bare Escentuals was founded in 1976. Its specialty is making cosmetics and skin products based on finely milled minerals rather than the oils used to make conventional liquid and cream cosmetics. The company says this makes the products more comfortable and natural looking, and less likely to clog pores and irritate skin. |
|
Bare Escentuals uses an unusual multichannel marketing and distribution strategy. On top of the QVC show, the firm uses infomercials, owns a chain of 30 boutique stores and sells through specialty spas and salons and through the niche Sephora and Ulta stores. This spares the expense of a national ad campaign, and also avoids competing directly with better-known brands. |
|
In the first half of this year, retail sales (including infomercial sales) took in 46.5% of revenue while wholesale took in the other 53.5%. Wholesale is the faster-growing segment, almost doubling over the prior year. |
|
RISKS, CHALLENGES |
|
Bare Escentuals' debt totals $713.8 million, so high the company actually has negative net worth. After the offering, that will shrink to $479.9 million, but Gaskins says that even at the current rate of growth the firm will have to do at least one other offering to pay it off. |
|
The firm is in a highly competitive industry, going up against such big names as L'Oreal, (LRLCY) Elizabeth Arden (RDEN) and Estee Lauder. (EL) The total market for high-end cosmetics is not growing rapidly, making the battle for market share all the more fierce. |
|
An internal audit identified material weaknesses in internal controls, leading to the hiring of a new CFO and other adjustments. The firm says no weaknesses have come up for the current year, but it does not guarantee there will be no problems. |
|
Bare Escentuals depends rather heavily on its CEO, who is not only the chief manager, but also the main marketer and public face of the company. If she were to leave, she would be difficult to replace. |
|
THE RESULTS |
|
The company has seen at least 50% growth in revenue each of the last four years. In the first half of this year sales gained 66% over a year ago to $186 million. Operating income almost doubled in the same period, with net income reaching 35 cents a share vs. 14 cents the prior year. |
|
USE OF PROCEEDS |
|
Bare Escentuals expects net proceeds of $236 million, or $271.7 million if the underwriters exercise their options. The firm will use the money to pay down various debts, along with $1.8 million to end the management relationships with its private-equity partners. |
|
THE MANAGEMENT |
|
Leslie Blodgett |
|
Chief executive and director |
|
Joined in 1995 after working at the Neutrogena unit of Johnson & Johnson (JNJ) and the Max Factor division of Procter & Gamble. (PG) She also serves on the board of privately held GoSmile. She completed the Fashion Marketing Program at the Fashion Institute of Technology. |
|
Diane Miles |
|
President |
|
Joined in May from LVMH Moet Hennessy Louis Vuitton, where she worked for 16 years, most recently heading the Benefits Cosmetics division. Before that she worked at L'Oreal. She holds a master's of professional studies from the University of London. |
|
Myles McCormick |
|
Senior vice president, chief financial officer, chief operations officer and secretary |
|
Joined in December 2004 as CFO and became COO in March. From 2001 to 2004 he served in executive positions at Gymboree. (GYMB) Before that he worked at Electronic Arts, (ERTS) Bebe Stores (BEBE) and Esprit deCorps. He has an MBA from Notre Dame de Namur University |