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So how come Alberto-Culver is still making money?

by Deb Weinstein
Feb 05, 2009


Deb Weinstein/ MEDILL

Sales and profits for Alberto-Culver Co. before and after the 2006 Sally-Holdings spin-off.

At a time when many businesses are soaked in red ink, health and beauty care company Alberto-Culver Co. is solidly in the black.

Based in Melrose Park, Alberto-Culver makes such products as skin care lines Noxzema and St. Ives, hair care lines Nexxus, TRESemmé and the iconic V05, spices and sweeteners Mrs. Dash, Molly McButter and Sugar Twin, and clothing product Static Guard.

In its fiscal year ended Sept. 30 Alberto-Culver earned $228 million, or $2.27 per diluted share, which included $110 million from disposition of Cederroth International, up from $78 million, or 80 cents per diluted share, in the prior year.  Net sales grew to $1.4 billion from $1.3 billion.

Earnings rose further in the company's most recent quarter, ended Dec. 31, to $32 million, or 32 cents per diluted share, from $30 million, or 31 cents per diluted share. Analysts estimate earnings this year of $1.36 per diluted share.

“It was much better than expectations,” said Deutsche Bank analyst Bill Schmitz. “Everybody else is struggling miserably and these guys continue to outperform."

The company’s stock, which sells around $25, remains close to its Sept. 8 52-week high of $29.40; its 52-week low was $19.32 on Nov. 21. The stock’s price-earnings ratio, based on 12-month trailing earnings, is 24, compared to the Standard & Poor’s 500 Stocks ratio of 18.9.

Small when matched up against competitors like Procter & Gamble Co. ($84 billion net sales), Alberto-Culver has managed to retain and expand its share of the health and beauty care market, its products knocking elbows with and holding ground against such established brands as P&G’s Herbal Essences and Pantene.

Analysts and industry observers say the key to the company’s continued success is its marketing and ability to turn what Schmitz called “orphan beauty businesses” like Nexxus, which was acquired in 2007, and Noxzema, which was added in 2008, into solid performers.

Morningstar Inc. analyst Lauren DeSanto agrees. She wrote in an e-mail, “Management has expertise in buying underperforming brands and delivering a strong return on them."

Beauty industry consultant Suzanne Grayson of Grayson Associates in San Juan Capistrano, Calif., called Noxzema “a hell of a brand,” and said that it got lost in the vast portfolio of former parent Procter & Gamble.

“I would say Procter & Gamble has tried over the years [to cultivate Noxzema] but it’s a singleton item and it’s hard to build mass with a singleton item,” she said. Grayson noted that the ability to hone in on an audience is a talent Alberto-Culver knows how to exploit.

Grayson added that Alberto-Culver is able to identify products that resonate with consumers and then define them in such a way that they have clear audiences.

The result, Grayson said, is that the company is able to establish a series of products that can co-exist without cannibalizing each other’s consumer base.

For contrast, Grayson looked to the cosmetics aisle and brands from L’Oréal SA. “Maybelline and L’Oréal are slugging it out in the mass outlets, basically competing for the same customer,” she said, “whereas [Alberto-Culver’s] TRESemmé and Nexxus are in different camps.”

In its Securities and Exchange Commission filings Alberto-Culver describes its products as ones that offer value.

Deutsche Bank’s Schmitz said the company keeps its edge because of its “decent price point and feel-good brands.”

Further bolstering its reputation among industry watchers was the agreement among controlling shareholders in 2006 to split Alberto-Culver into two companies—the new Alberto-Culver, which would embrace the beauty and home products, and Sally Holdings Inc., operator of Sally Beauty Salons and retail outlets.

Both Grayson and DeSanto said the division made the beauty-and-home products entity “more focused.”
Gaining traction after the Sally Holdings spinoff did not take long. Although the new Alberto-Culver reported a loss for the quarter that closed weeks after the split in Dec. 31, 2006, the company immediately followed with consistent earnings in ensuing quarters.

And yet, Alberto-Culver remains a stealth player.  It obtains almost 24 percent of its net sales from Wal-Mart Stores Inc., but its products are largely absent when it comes to making lists like Allure magazine’s “Best of Beauty” that includes prestige and mass-retail picks from editors, or the Condé Nast site  In its stead are L’Oréal Pro-Vive and Procter & Gamble’s Pantene in the hair-care category and Johnson & Johnson’s Neutrogena and Aveeno lines in the skin-care “best-of” picks on Allure’s list. St. Ives, a natural, well-performing brand for Alberto-Culver, has just one mention from Allure, for body wash; no other company products made the cut.

The company did not even get a nod in the “Drugstore Cowgirl” section of However, the mass-marketed, blemish-clearing Queen Helene Mint Julep Masque by Hain Celestial Group Inc. did.

Industry watchers say the lack of consumer support is not because consumers are embarrassed to use the brands. No one interviewed had an explanation for why the company’s products do not get the same amount of attention, despite its sizeable fan base.

Although the company may not be garnering attention in printed lists, its advertising and marketing strategy—which the company identifies as an important component of its business plan in its SEC filings—is one on which the company remains focused.

The continued investment in advertising bears out the company’s commitment to promotion. In 2007, Alberto-Culver increased its advertising spending by 10.8 percent to $256.9 million, or 18.8 percent of net sales. In 2008, it increased spending again, this time by 6.9 percent to $265 million, 18.4 percent of net sales

In comparison, giant Procter & Gamble has devoted 10 percent of sales to advertising over the past 15 years, according to its 2008 annual report.

Alberto-Culver has also been deliberate with product placement, getting the TRESemmé line featured on NBC Universal’s show “Project Runway” which is broadcast on the subsidiary cable station Bravo, a tactic Grayson described as “not necessarily direct media,” but definitely smart media.

“They’re not ‘hot’ in terms of the Internet and buzz,” she said, “but they’re reaching consumers.”

“I think one of the best things they did was “Project Runway,” said Schmitz.

With respect to other company interests, such as Mrs. Dash, Molly McButter, and Static Guard among others, analysts say they may not be an obvious fit, but they are products with considerable margins and they “bring in a lot of cash,” said DeSanto.