Physicians Formula Holdings, Inc. (FACE)

Physicians Formula (FACE) is one of the fastest growing cosmetics companies operating in the mass-market prestige (Masstige). The company markets innovative and premium priced products for the mass-market channel. Its products address specific, everyday cosmetics needs and include face powders, bronzers, concealers, blushes, foundations, eye shadows, eye liners, brow makeup and mascaras.

The $2.8 billion face makeup and $2.5 billion eye makeup market has been on a rise with a compounded annual growth rate of 3.0% and 5.9% respectively since 2000. The business of selling cosmetic is highly competitive with companies competing on the basis of market share and product innovation. More importantly, FACE through its continuous product innovation has been able to gain substantial Masstige market share and has established a foothold of 12.7% and 5.2% respectively till November 2006. The company’s innovation spree is reflected from the fact that its new products contributed 33% to the total net sales for Q3’06.

FACE has been consistently broadening its total distribution, which has ensured a top-line growth of 29.5% for Q3’06. The company’s ability to differentiate its product as solution for skin imperfections would help them to be less affected by dramatic changes in fashion trends. The company continues to expand its presences in the mass-market channel in the U.S. and abroad has resulted in rapid growth in their customer base.

The company’s focus on developing new products coupled with promotional activities to support these innovations should enable the company to gain additional shelf space during its peak fourth and first quarter. The company’s potential to enhance its revenue through product innovation should be reflected in its bottom-line, which would enhance the shareholders value in the coming year.