Sales of cosmetics add gloss to Premier

Apr 3 2008 by Karen Dent, The Journal

BOOKS, gifts and toys seller Premier Direct said it will concentrate on the growth of its Oriflame cosmetics business as it announced an increase in profits despite a fall in sales.

The South Tyneside-based business, which sells goods through offices, hospitals and schools via its network of 500 self-employed salespeople, announced pre-tax profits of £924,000 for the six months to the end of January, up from £846,000 in the first half of 2007. But revenue fell to £10.7m from £12.7m as average sales per distributor fell by 10%.

Chief executive Eric McClenaghan said the AIM-listed business was trading in line with expectations, although the reduction showed it had not escaped from the economic downturn and its repercussions on the retail sector.

“I wouldn’t say we are immune from the downturn but we are reasonably immune. Our average customer spend is £5, so we will feel it less than most retailers,” he said.

“We offer a selection of products that will appeal to men, women, boys and girls. It’s an impulse purchase. People haven’t sat at home and thought ‘I must buy this product’.”

Increasing the number of visits made by salespeople to workplaces in the run-up to Christmas did not result in the hoped-for boost in sales and the approach is “very, very unlikely” to be repeated, Mr McClenaghan said.

“Our salespeople didn’t get behind it with the gusto and commitment I would have hoped they would. We saw about a 5% improvement rather than a 20% improvement.”

The Oriflame cosmetics business, which the South Shields-based company bought two years ago, will be one of the group’s main focuses in the year ahead. Keith Milton has been appointed to the group’s board as commercial director to allow Mr McClenaghan to concentrate on Oriflame’s development.

He said: “Effectively, he has been brought in to take the load off me in our core shopping-at-work business. That will allow me to put about 50% of my time into Oriflame, which currently gets about 10% of my time. It is our growth area.”

Denise McEvoy, who has worked with the group for 15 years, has been appointed as head of sales to spearhead the rollout of Oriflame from catalogue and party-plan sales to something customers buy at work. “One of the main reasons for buying Oriflame was to see if we could bring it into selling in the workplace. It has been very encouraging,” Mr McClenaghan added.

Premier Direct’s administration costs reduced from £3.5m to £2.9m during the period, mainly through decreasing the warehousing and staff costs.

Mr McClenaghan said: “We have taken off the nightshift, there is less overtime and less recruitment. We have generated the reduction without laying a single person off, it has been achieved through natural wastage.”

The business is now reviewing the way its distributors are deployed and is considering moving people across from books and gift sales to the Oriflame brand.

Earnings per share increased to 4.5p from 3.4p a year ago as the group said it expected to continue to trade profitably in the second half of this financial year. Shares rose by 2% to finish the day on 22p.