offering (IPO) in October gene
rated approximately $43.5 million in company proceeds (another $23.8 million was earned by the Minis family from the public sale of their shares) and allowed Carson to pay off all the company’s junior debt, half of the senior debt and refinance the balance of the debt it incurred during the leveraged buyout. In addition, the company is using the proceeds to finance both its expansion into new markets and the purchase and development of new products. Carson’s current debt load stands at about $80 million.
Unlike its South African stock, however, Carson’s U.S. stock has not experienced the same type of dramatic price increase. In fact, the stock recently experienced a decline that concerns some on Wall Street. Though the U.S. stock opened at $14 a share and traded as high as $17, it recently dropped as low as $7, and in early June sold at around $10. According to Jonathan Hudson Webb, a principal in the Chicago-based securities firm Hudson Knight (which, along with Merrill Lynch and DLJ Securities, was involved in the U.S. IPO of Carson stock), the recent sharp drop in the company’s stock can be attributed to a shortfall in its sales and resulting earnings during the first quarter of 1997. “We had initially forecast earnings at 12 cents per share in the quarter but lowered our estimate when management indicated the shortfall.” Webb notes that Carson stock actually earned 5 cents a share during the first quarter.
Carson’s director of special investor relations, Skip Porter, says the company’s decreased profits were the result of both flat domestic sales during the first quarter and increased spending on new product line preparation. According to Porter, Carson launched a promotional campaign in conjunction with the Dark & Lovely product line’s 25th anniversary, and higher volumes of product were shipped during the fourth quarter of 1996 and first quarter of 1997.
“The promotion took off quicker than we anticipated, and December sales were phenomenal. We were up 32%,” says Porter, explaining that Carson projected the sales increases would be spread out over a two-quarter period. “We ended up with some excess inventory at retail during the first quarter, but it was off the shelves by April.”
Porter also notes that during that same period, Carson spent a significant amount of money hiring staff and preparing for the August launch of its Dark & Lovely Cosmetics line–expenditures which dipped into profits.
To a great extent, Carson’s rapid expansion into the global market fueled its successful public offering on both the Johannesburg and U.S. stock exchanges. It is this aspect of the company’s growth that appears to be generating the largest amounts of interests from investors. “Investors are clearly looking at [ethnic products] as a growth area,” says DeJongh of Ark Capital Management. “Maybelline, Procter & Gamble and Revlon, they all recognize the strength of the global market. It is growing faster than any other.”
Webb, of Hudson Knight Securities, predicts Carson’s international growth should expand at twice the rate of