Chattem Looks To Bolster Dexatrim Line With New Bar, R&D
This article was originally published in The Tan Sheet
Executive Summary
Chattem says it has created a strong new line extension for its Dexatrim weight-loss products with the launch of the Dexatrim All In One bar in the second quarter
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Chattem says it has created a strong new line extension for its Dexatrim weight-loss products with the launch of the Dexatrim All In One bar in the second quarter. The company has been able to penetrate food, drug and mass accounts with aggressive marketing, a challenge in an already crowded diet bar market. "We've created a significant brand for Dexatrim," CEO Zan Guerry said during a June 18 earnings call. "It's moving well at pretty much all the accounts," though he noted the firm was "a little late" in acquiring food distribution. Chattem will continue media support for the product over the next several months, with a "major" FSI planned for early August. The firm also will roll out two new flavors in September to complement the existing three. "It's a promotion-driven business, and we're working with all these key accounts to get good promotions," Guerry said. "Over the next six months we will get a better perspective on where it settles out - probably somewhere between $10 mil. and $30 mil. - but it's that kind of category where things can happen quickly." A successful launch of the All In One Bar would be a breath of fresh air for the brand, which has suffered as a result of PPA- and ephedra-related litigation. Chattem announced the removal of bitter orange (Citrus aurantium) from the line in February and halted shipments containing the ingredient in May (1 (Also see "Chattem Shipments Of Dexatrim With Bitter Orange To Halt In May" - Pink Sheet, 23 Feb, 2004.), p. 13). The higher-margin Dexatrim diet pill business was down 55% during the second quarter (ended May 31), generating approximately $3 mil. to $3.5 mil. in sales compared to the All In One Bar's $3 mil. Chattem now expects the total Dexatrim business to generate $11 mil. to $13 mil. for the fiscal year. "I think at the start of the year we thought it might be more in the $15 mil. range," said CFO Alec Taylor, attributing the decline to "the bad news that's dogged the diet pill business the last couple years," as well as consumer focus on low-carb dieting. However, Taylor noted that Chattem is "working on some things for 2005 in our R&D department, and we hope that we'll be able to at least somewhat revive the diet pill business next year." Chattem expects to announce four to six new line extensions to major product lines in August in preparation for rollouts next year. "I've seen enough market research to know we've got at least two or three [product ideas] that will definitely produce incremental sales, and then if these other two work out, we could have a kind of blockbuster period," said Guerry. Chattem reported overall revenue of $70.1 mil. in the second quarter, a 10% increase over the prior-year period. The firm's net income, excluding debt extinguishment and litigation settlement charges, increased 41% to $10.6 mil. In addition to the All In One bar, the firm noted the promising launch of the Icy Hot Medicated Sleeve , as well as strong performances from the Gold Bond line, Selsun Blue dandruff shampoo and Bull Frog sunscreen brands. Sales of the Icy Hot Sleeve exceeded expectations, tracking ahead of the Icy Hot Back Patch in several accounts on the strength of heavy promotional support, including regular television spots featuring NBA star Shaquille O'Neal. Guerry noted that it is early in the firm's campaign and that there is "a lot more media to run over the next three to four months." Gold Bond Ultimate Healing performed well during the quarter and "has proven to be less seasonal" than other Gold Bond products, according to Taylor. Ultimate Healing "has really been a home run of a line extension, and I think it's opened a lot of doors for us in proving that Gold Bond could go beyond just a pure menthol product," he noted. In addition to the decline of the Dexatrim pill business, Chattem noted weakness in the international area, with its Canadian business experiencing a "disappointing" winter and spring. "We probably had that business a little too much on auto-pilot," said Taylor. "We think we've identified the problems, and that business seems to be strengthening." The firm has high expectations for the Canadian launch of Gold Bond Ultimate Healing this fall. On the PPA litigation front, Chattem signed a final definitive settlement agreement during the quarter. Claims and opt-outs must be filed by July 7, and the firm hopes the litigation will be wrapped up in the third or fourth quarter. |