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Prestige Brands Holdings Inc. Reports Operating Results (10-K)
Posted by: gurufocus (IP Logged)
Date: May 18, 2012 06:16AM
Prestige Brands Holdings Inc. (PBH) filed Annual Report for the period ended 2012-03-31. Prestige Brands has a market cap of $678.8 million; its shares were traded at around $13.7 with a P/E ratio of 14.6 and P/S ratio of 2.
Highlight of Business Operations:Our principal customer relationships include Walmart, Walgreens, CVS, Target and Dollar Tree. Sales to our top five and ten customers accounted for approximately 40.0% and 50.1% of total gross sales, respectively, in 2012 compared with approximately 41.7% and 53.0%, respectively, in 2011 and approximately 45.6% and 57.3%, respectively, in 2010. No single customer other than Walmart accounted for more than 10% of our gross sales in any of those years and none of our other top five customers accounted for less than 3% of our gross sales in any of those years. During 2012, 2011 and 2010, Walmart accounted for approximately 18.9%, 20.3% and 24.4%, respectively, of our gross revenues.
Certain of our product lines that account for a large percentage of our sales have a small market share relative to our competitors. For example, while Clear Eyes has a number two market share position of 17.2% within the allergy/redness eye drop segment, its top competitor, Visine®, has a market share of 29.7% in the same segment. In contrast, certain of our brands with number two market positions have a similar market share relative to our competitors. For example, Compound W has a number two market position of 35.9% and its top competitor, Dr. Scholl s®, has a market position of 38.2% in the same category. Finally, while our New-Skin liquid bandage product has a number one market position of 56.3%, the size of the liquid bandage market is relatively small, particularly when compared to the much larger bandage category. See “Part I, Item 1. Business - Major Brands” of this Annual Report on Form 10-K for information regarding market share calculations.
For 2012, our top five and ten customers accounted for approximately 40.0% and 50.1%, respectively, of our sales, compared with approximately 41.7% and 53.0%, respectively for 2011 and 45.6% and 57.3%, respectively for 2010. Walmart, which itself accounted for approximately 18.9%, 20.3% and 24.4% of our sales in 2012, 2011 and 2010, respectively, is our only customer that accounted for 10% or more of our sales. We expect that for future periods, our top five and ten customers, including Walmart, will, in the aggregate, continue to account for a large portion of our sales. The loss of one or more of our top customers, any significant decrease in sales to these customers, or a significant decrease in our retail display space in any of these customers stores, could reduce our sales and have a material adverse effect on our business, financial condition and results from operations.
We construct our returns analysis by looking at the previous year s return history for each brand. Subsequently, each month, we estimate our current return rate based upon an average of the previous six months return rate and review that calculated rate for reasonableness, giving consideration to the other factors described above. Our historical return rate has been relatively stable; for example, for the years ended March 31, 2012, 2011 and 2010, returns represented 2.9%, 2.7% and 3.8%, respectively, of gross sales. At March 31, 2012 and 2011, the allowance for sales returns was $3.3 million and $5.2 million, respectively.
Many of our products are subject to expiration dating. As a general rule, our customers will not accept goods with expiration dating of less than 12 months from the date of delivery. To monitor this risk, management utilizes a detailed compilation of inventory with expiration dating between zero and 15 months and reserves for 100% of the cost of any item with expiration dating of 12 months or less. Inventory obsolescence costs charged to operations for 2012, 2011, and 2010 were $3.3 million, $0.2 million and $1.7 million, respectively, or 0.8%, 0.1% and 0.6%, respectively, of net sales.
Stocks Discussed: PBH,