Physicians Formula Holdings, Inc. announced financial results for the three months ended March 31, 2012. Net sales for the first quarter of 2012 were $26.2 million versus $21.1 million in the first quarter of 2011, an increase of 24%. The net sales growth was driven by an increase in color cosmetics sales and expanded distribution of the skin care line. In addition, net sales were favorably impacted by a delay in the timing of various retail marketing programs. The company expects that these programs, which are accounted for as a contra-revenue item, will be implemented later in this fiscal year.
The company also noted that, in the food, drug and mass channel, its products achieved 9% point-of-sale dollar growth over the last 52 weeks versus the prior year period, whereas the overall masstige color cosmetics category only grew 7%, as reported by AC Nielsen. This made Physicians Formula the fastest-growing masstige color cosmetics brand in dollar sales among the major five masstige brands in food, drug and mass during this period.
Gross margin for the first quarter of 2012 improved 2.5% to 51.1% of net sales versus 48.6% in the prior year period. This improvement was primarily driven by positive product mix, reduction of manufacturing costs and lower usage of air freight.
Overall, selling, general and administrative ("SG&A") expenses as a percentage of net sales declined to 37.3% from 41.7% in the prior year period as a result of the sales increase. SG&A expenses increased $1.0 million to $9.8 million for the first quarter of 2012 versus $8.8 million for the prior year period, with the increase driven by the variable expenses associated with the increased sales, as well as an increase in brand marketing expense.
Net income for the first quarter of 2012 was $2.4 million, or $0.16 per diluted common share. This compares to net income of $0.5 million, or $0.03 per diluted common share, for the first quarter of 2011. Net income increased due to improved operating performance, as well as lower interest expense and a lower provision rate for income taxes.
Ingrid Jackel, Physicians Formula chairwoman and CEO, stated, "We are pleased with our first quarter results, which exceeded both our top and bottom line expectations. Net sales growth was driven by better than expected demand of our color cosmetics products, as well as the planned distribution expansion of our skin care platform. Through the successful execution of our product and brand investment strategies, we have expanded our market share of the masstige category and maintained our retail sales momentum. We have returned our company to profitability by generating strong product performance while improving our financial discipline. During the quarter, our retail partners made the decision to shift certain marketing programs to later in the year. Overall, we expect our total marketing and brand investments to remain at originally planned levels for 2012."
Regarding the fiscal outlook for the company, Jackel commented, "Due to our strong first quarter performance and the strength of our 2012 new color cosmetics product launch, we are increasing our expectations for net sales to grow between 8% and 11% for the full year 2012 from the 7% to 10% range we previously projected. Additionally, we expect earnings per diluted common share to be between $0.10 and $0.18 for the full year 2012 versus the $0.07 to $0.15 in our earlier projections."