CHATTEM CITES RETAIL INVENTORY REDUCTIONS FOR ANTICIPATED SALES DECLINE
This article was originally published in The Tan Sheet
CHATTEM CITES RETAIL INVENTORY REDUCTIONS FOR ANTICIPATED SALES DECLINE in the fourth quarter and fiscal year 1993 ending Nov. 30. In a Nov. 9 press release, Chattem reported that fiscal 1993 sales will be "down slightly" from the 1992 level of $ 108.2 mil. and operating income will decline approximately 15% from $ 13.7 mil. last year to about $ 11.6 mil. Chattem suggested that annual operating income is the most "relevant" measure of earnings given the company's recapitalization in June ("The Tan Sheet" May 24, p. 17). "The shortfall in sales from expectations is attributable to the domestic operations of Chattem Consumer Products and principally reflects inventory reductions at the retail level," Chattem said. "In particular," the firm noted, "retail movement of key consumer brands such as Pamprin and Flex-all 454 has significantly exceeded factory sales to the trade, indicating customer's reduction of inventory levels." The trend among retailers of carrying lower inventories, the company said, also affected the launches earlier in the year of two Chattem line extensions, Maximum Strength Flex-all 454 and Nighttime Pamprin. "Due to reluctance of the trade to build inventory, retailers have been slow to accept new products in certain cases or have taken the line extensions and reduced purchases of other Pamprin and Flex-all 454 items in others," the company explained. The anticipated decline in fiscal 1993 operating income "reflects the lower than expected consumer product sales combined with a commitment to maintain planned levels of advertising and promotion," the company stated. Domestic advertising and promotional spending in fiscal 1993 will come to approximately $ 31 mil., up 5% from the year before, and equals about 37% of U.S. consumer product sales. Fiscal 1993 operating income also was negatively affected by the loss of an important Chattem Chemicals customer, the firm noted. Chattem's sales increased in the first and second quarters but declined 7.9% in the third quarter. Net income, which was up in the first quarter, has declined in each of the last two quarters. Although the company expects fiscal 1994 sales to exceed fiscal 1993 sales, Chattem said it has developed an "achievable plan . . . which would result in the company earning between 75 cents to 85 cents per share in 1994 even if sales remain at forecasted 1993 levels." Chattem said that under the plan, it will be able to continue supporting its consumer brands "with relatively high levels of advertising and promotion expenditures which will provide the impetus for future growth."
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