What a difference half a year makes. Back at the beginning of the year the company was extremely confident of hitting £14million turnover and £2.5million in profits for the year ended 30th of June 2018. The actual numbers were significantly less than that at £10.7 million and £0.67million respectively.
So why the big drop? Well at the beginning of the year the company had big plans, Skinny Tan its main brand was doing well and was going to be expanded in numerous international countries, especially the USA. Roots Double Effect its in house haircare brand which had launched in August 2017 was starting to gain traction. It was going to launch numerous other brands; Stevie K a colour cosmetics brand, Charles and Lee a men’s grooming brand, Enbright a product to target the multi billion £ skin whitening market, Prolong a FDA approved device to help people who suffer from Premature Ejaculation and HAIR(MD) a laser helmet to help regrow hair. It all sounded extremely promising so what happened?
There were a few issues, but by far the biggest is that Superdrug, by far and away Innovaderma’s(IDP) biggest customer, tried to get (IDP) to extend their Skinny Tan exclusivity which is due to expire in February 2019, when IDP declined Superdrug dramatically reduced their order volumes. This impacted cashflow and meant IDP didn’t have enough cash for all the products it wanted to launch. There were also rumours that STEVIE K cosmetics and Charles and Lee were due to launch in Superdrug and that also got cancelled. In effect Superdrug tried to blackmail us and we refused to pay. I for one think that, despite the short-term pain, it was the right decision.
The fallout from all this is that Superdrug reduced the shelf space of Skinny Tan within its stores. Replacing them with other tanning brands. This meant that they didn’t need to order as much stock. Overall Skinny tan revenues in the second half of the year were roughly comparable to the second half of FY2017. So there was no growth from Skinny Tan despite Direct to consumer (DTC) sales rising 36%. This means there must have been an actual decline in Superdrug orders, despite sales out to customers from Superdrug rising by 12% during the year. This shows that the main reason for the decline is the destocking by Superdrug, which…
Nice analysis. Thank you.
I agree with all the points above. However I am concerned that the Headmaster product should be dropped. It just sounds like a gimmick with too many parts that coukd gonwrong (a lesson that will be familiar to management after the Prolong technical issues). The IDP empire coukd be built but they need to be cautious about overstretch.
The 14.7 million will hopefully feel conservative once new territories start opening up for Roots.
