IRVINGTON, N.Y. Second-quarter results for Prestige Brands were negatively affected by both the voluntary removal of two kids’ cough-cold products under the Little Remedies banner as well as diversion, the company stated during a conference call Thursday.
“During Q2, we uncovered diversion behavior by a small number of our international customers,” reported Mark Pettie, Prestige chairman and chief executive officer. “We immediately stopped sales to these customers and took other steps that make us confident that we have eradicated this behavior. However, the short-term result of this necessary action was an 18 percent decline in Q2 in international revenues versus year-ago.”
Prestige also reviewed its pricing lists to help prevent the cost differentials between markets that entice diverters. “We reviewed our price list across our entire customer base to make sure that there were no longer opportunities out there for this situation to present itself in other parts of the geography. It was isolated primarily to the Caribbean.”
Pettie said that despite this setback, the company would still focus on international growth opportunities.
Prestige’s net revenues for the second fiscal quarter ended Sept. 30 were $87.3 million, 3 percent higher than net revenues in the prior year comparable period. Net revenues for the quarter would have been 4 percent higher, and organic sales for the quarter would have been 2 percent higher than the prior year quarter were it not for the industry-wide voluntary withdrawal of infant cough/cold products in which the company participated. Accordingly, Prestige increased its allowance for estimated returns by $1.1 million and its allowance for obsolescence by $800,000 to reflect the two withdrawn items.
However, the recall of cough/cold products for toddlers under the age of two has not impacted the overall kids cough/cold market, Pettie said. “No. Absolutely not. Consumption of [other Little Remedies] products is staying exactly where we projected it at this point,” he said. “We will continue to monitor that as this unfolds. You can expect that media coverage of this will ebb and flow as FDA goes through its longer-term deliberations,” Pettie said.
The discussion for FDA now will focus on what happens with medicines marketed to children between the ages of two and six, Pettie said. “If [FDA] continues to allow [the industry] to market products to that segment, [Prestige] is ramped up and ready to go with our re-entry strategy. But it is probably going to be beyond this year’s cough/cold season before that ruling comes down.”
Prestige also reported that retailers have been slow to build inventory entering the 2007/2008 cough/cold season. “After two consecutive soft cough/cold seasons, many of our retailers appear to be shifting toward a more consumption-based ordering pattern,” Pettie said. “We welcome that in some regards, because it helps our supply chain as well.”
Looking forward, Prestige plans to grow its Chloraseptic brand beyond sore throat indications. “There is ample consumer evidence that we can push out beyond those [indications] so we are focusing on [new] items that would move Chloraseptic beyond its core heritage and at the same time build scale behind that very important brand.”