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BARE AT A GLANCE

P/E ► 0   EV/EBITDA ► 1.63 VERY LOW ROA ► 38.4% VERY HIGH ROE ► -306% VERY LOW Debt to Equity ► 15.5 VERY HIGH Current Ratio ► 4.50 HIGH Interest Coverage Ratio ► 10.9 AVG

 

 

 

 

 

 

Revenue, Net Income, and Net MarginRevenue, Gross Profit, and Gross MarginOperating IncomeEbitIncome Before TaxesNet Income from Continuing OpsInterest vs Continuing IncomeInterest CoverageOperating ExpensesSG&AAmortization & Depreciation

Bare Escentuals Inc. (NYSE: BARE) is a San Francisco based natural health and beauty company that develop and sells its own line of cosmetics (i.d. BareMinerals, i.d. RareMinerals, and Bare Escentual brands). The company operates over 300 privately owned boutiques and holds retail contracts with department stores and home television networks. The product: BareMinerals generates most of the company's revenue.

Differentiation and distribution channels are the keys to the company's success. Bare Escentuals produces cosmetics with 100% all natural minerals. In doing so, BARE maintains a brand image that feeds on the mainstream public's desire of having skincare and make up in one product. The company aims to cover all income levels of consumers through displaying different products at different price levels ranging from over a hundred to around twenty dollars.

Instead of going through department stores such as the conventional makeup product, BARE focuses its marketing plan through infomercials in an exclusive contract agreement with QVC-an internationalshopping channel that has evolved into one of the world's leading multimediaretailers with 50 million customers for over 21 years. From that angle, BARE began by selling directly to the customers and thus building a loyal customer base without using the middle retailer. It remains the number 1 cosmetic product sold on QVC.

The majority of demands from QVC is rooted in the lower level consumers who are more susceptible to Part of the reason is due to competiting boutiques and department stores. Secondly QVC mainly channels to the lower economic level consumers who are more susceptible to economic downturns.

Although QVC remains the primary distribution channel for BARE, it also sells its products through various distribution channels consisting of premium wholesale, company-owned boutiques, spas and salons, and online shopping (2008).^[1]

Seeing this success, competitors have come forth with similar products, however, Bare Escentuals remain one of the most popular and well known of mineral based make ups. In the past five years, BARE has experienced more aggresive growth than its competitors despite the lapses in the economy.

[edit] History

Bare Escentuals Inc. was started in 1976 in Los Gatos, California. Until 2006, it was called STB Beauty before changing it to Bare Escentuals Inc. Starting in the 90s, the company began to sell its products through boutiques in the San Francisco Bay Area. The CEO, Leslie Blodgett advertised her company through QVC television marketing using real women testimonials. Currently, Bare Escentuals are sold in one of the company’ 300 private retail stores and boutiques and make up specialty stores (Sephora). Their most famous brand; bare Minerals has won numerous awards, including the Glamour Magazine’s award (2006 and Teen Vogue Reader’s Choice for best foundation (2007). ^[2] </reference>

[edit] Overall Business Outlook:

[edit] Products:

• I.d. BareMinerals: BareMinerals was the first product created by Bare Escentuals Inc. and up to date remains the most popular line among consumers. It is the number 1 product sold on QVC. The company holds exclusively the patent for extracting fine minerals used for BareMinerals, a product proven to cover blemishes allegen free. it has been tested to cover rosasea and acne. BareMinerals make up the majority of profit for Bare Escentuals Inc. For the past five years, it is also the leader in the company's expansion, being responsible for the substancial increases in profit over the past year.

• I.d. bareVitamins: Cosmetics appliances (finishing powders, facial-prep products, lipsticks, lip-glosses, lip liners, mascaras, application tools and brushes) used to complement the BareMinerals makeup kit.

• I.d. RareMinerals: The newest creation: nighttime skincare product (Skin Revival Treatment) using the same patented mineral extraction and formulation. It is the first skincare product to be made from 100% minerals (with newly discovered "Jurassic Soil"). Clinical trials tested skin cells turnover increased 35% after 23 days of use. On February 4th, 2008, due to the favorable customer response the company has released two new products: Renew & Reveal Facial

Cleanser and Blemish Therapy. RareMineralls has been publicized in both WWD Beauty Biz magazine and Shop, Etc. Magazine for its innovative formula. ^[3].

• I.d. md forumlations: Created in 2004- professional skincare products-luxury spa items.

Both the production and the consumer demand for BARE products are in the United States. International sales are limited to less than 5% of the total revenue.

[edit] The Market:

• Sales/Advertisement: While Bare Escentual's products began through informercial and private boutiques, it has expanded to become a popular item at big name department chains such as(Macy's Inc. (M) and Nordstrom (JWN). The number 1 distribution channel remains through QVC: through QVC's international locations Bare Escentual is beginning to make a mark in other countries. However, as of 2007, the international revenue is only 4.7% of the annual sales. The sales came from color cosmetics (93.7%) and skin care products (6.3%) respectively. Instead of focusing on one particular group of consumers, Bare Escentual's products are priced in various levels to target anyone.
• Further market sales are broken down as follows:

[edit] Influential Trends

• Growth of Asia: To date, BARE products can be found in Japan, Australia, and Europe. Out of these three, Japan and the Asian market have the greatest impact on BARE. Asia is the most populous and the largest of all continents with over 4 billion people (60% of the world population). In terms of nominal GDP in 2007, Asia is the 3rd- after N. America and Europe. Historically,Japan has had the largest economy in Asia and second-largest economy of any single nation in the world as well as the 6th largest importer. BARE's expansion to Japan is favoured by friendly U.S. relations, which leads to a low tariff, and the Japanese love of Cosmetics. Using BARE's competitors as an example, both L'Oreal and Elizabeth Arden have major headquarters in Japan. There is a culture for beautifying skin and buying expensive cosmetics. Aside from that, China also has a huge pool of consumers interested in foreign cosmetics. In 2005, the Chinese cosmetics retail sale increased by 14% in the single month of October with a future predicted increase of 8-10% up to 2010. New retail laws were published in that year ending that allows cosmetic companies to engage in direct sale with little restriction. In 2005, Avon began an aggresive marketing strategy in China. ^[4]

• Preference for Natural products: Although there is assurance from the largest cosmetic companies that their various ingredients are safe to use, there is a growing preference for cosmetics that are without any "synthetic" ingredients, especially those taken from petroleum. Once a niche market, certified organic products are becoming more mainstream. Even though many products in cosmetics are regulated, there are many health concerns that come from harmful chemicals in these products. Some products carry carcinogenic contaminant 1,4- dioxane. Not all organic products are better but they don't carry harmful preservatives that could be harmful. Many cosmetic companies are coming out with "All natural" and "Organic" products.

^[5]

• Petroleum Prices: Because many cosmetic products include particles from Petroleum, it is a factor that cosmetic companies must adhere to. While cosmetics take up a relatively small percentage of the world's oil supply, it will still be affect when the prices go up. A higher operating cost for the conventional chemical based cosmetic companies will lead to an increase in competition for the natural mineral makeup market.

^[6]

[edit] Competition:

Because the key difference between the marketing strategy of BARE and its competitors is the distribution channel, BARE's relative performance can be broken into two segments. Either it is measured against the larger and more established cosmetics company such as the following:

Note: Neutrogena belongs to JOHNSON & JOHNSON (JNJ) thus its financial data is that of JNJ.

Note: Avon and Neutrogena both have created their own line of mineral makeup, but the financial data is inclusive of all of their products and not restricted to the sales of mineral makeup.

Or it can be measured more specifically against natural mineral makeup industry by itself, where it appears much more competitive:

1)L'Oreal (LRLCY): A France based cosmetics company with 19 global brands under 4 different product ranges. Instead of focusing only on developing products as a mean of expansion, L'Oreal is also acquiring other companies in different fields. On April 7th 2008, L'Oreal and Nestle SA have joined to buy CollaGenex Pharmaceuticals Inc. It is a far more global company than BARE and depends mostly on foreign sales in the U.S. and Asia to maintain the yearly revenue. ^[7]

2)Elizabeth Arden (RDEN) -market cap 407$M : A U.S. beauty company that sells skincare products, color cosmetics and fragrances. On November 5th, 2007, RDEN signed an exclusive glocal licensing contract with Iconix Brand Group, Inc. (Iconix) for the development, marketing and distribution of men's and women's fragrance, cosmetics, and skincare products with the leading lifestyle apparel brand Rocawear. ^[8]

In comparison to other cosmetics company, Bare Escentuals have a smaller revenue and a smaller income. However, it does not function in a conventional cosmetics company's way in its products and its marketing ways.

[edit] Finance:

[edit] Sales/Profit

Bare Escentuals Inc. closed 2007 fiscal year with 511 million dollars in net sales, a 30% increase from 2006 (394.5 $ million). The 90,000 shares outstanding are valued at about 0.94$/share (88 $ million in net income). ^[9] AS indcated by the table, the company shows a continuous growth in sales as well as an increasing net income.

[edit] Stock Holders

• The top stock holders for BARE are the following: Capital World Investors(9.2M shares, 10%) Artisan Partners (4.6M shares, 5%) and Thornburg (4.6M shares, 5%), Waddel & Reed Financial Inc. (4.2M shares, 4.6%).

[edit] Expansion

On April 7th 2008, Bare Escentuals Inc. acquired the Cosmeceuticals Limited ("Cosmeceuticals")company, which Bare Escentual's products to spas, salons and QVC in the U.K.^[10]

The focus of BARE's expansion is through popular retailers such as Sephora and Ulta, which will take sales away from the company's private boutique stores. The company's revenue has shifted from infomercial sales-as in QVC, to lower gross margin whole sale business. Furthermore, the decrease in infomercial sales is caused by two reasons: competitor products and macro economics. The majority of the customers reached through infomercials belong to the lower income level, making them more suseptible to the fluctuations in the U.S. economy. The company overall has a unique and diverse distribution model that is responsible for the aggresive growth in the past, but it has no comparative advantage. A danger to overly aggresive growth is over-reaching into markets that are unlikely to sell well. BARE is not big enough to act in ways L'Oreal or Elizabeth Arden can.

References:

[edit] References

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10K Sec Filing, 02/28/08-Edgar Online

RAREMinerals Yahoo Finance Forbes Magazine [1] Wikipedia L'Oreal Financial Data