Icy Hot maker Chattem feels the economic slump

CHATTANOOGA, Tenn. The economy is taking its toll on consumer-packaged goods manufacturers, as inventory cut-backs and retail and increased promotional spending prove to be a drag on earnings.

“While total revenues in the first quarter were lower than expected, we remain confident about the strength of our brands and our prospects for the balance of fiscal 2009,” stated Zan Guerry, Chattem chairman and CEO, in announcing the company’s first quarter results for the period ended Feb. 28. “Retail sales of our existing brands as measured by A.C. Nielsen and mass merchandiser point-of-sale data, excluding the discontinued Icy Hot Heat Therapy and Icy Hot Pro Therapy, increased by approximately 5% and 6% for the four and thirteen weeks ending March 21, 2009, respectively.”

Chattem reported that total revenues for the first quarter of fiscal 2009 were $116.1 million, representing a 3.9% decrease. The decrease in total revenues was due primarily to a $4.3 million reduction in international revenues, the company reported, but the balance of the decrease was related to lower sales of Icy Hot, Selsun, Bullfrog and Dexatrim, “caused in part by the timing of shipments, reduced retail inventory levels and two fewer shipping days in the first quarter of fiscal 2009,” the company stated.

The recall last year of the air-activated, self-heating Icy Hot Heat Therapy patch product was also a factor, Chattem noted.

Also adversely impacting Chattem total revenues was an increase in promotional programs that are recorded as a reduction of revenue rather than as advertising and promotion expense, the company added.

Advertising and promotion expense in the first quarter of fiscal 2009 decreased by $5.9 million to $28.6 million, or 24.6% as a percentage of total revenues as compared with 28.6% of total revenues in the prior year quarter. A&P expense was lower for the first quarter of fiscal 2009 due in part to an increase in promotion programs utilized by retailers that were recorded as a reduction of revenue rather than A&P expense and price efficiencies realized on certain media purchases.

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