Alberto-Culver Company (ACV)

Alberto-Culver engages in the development, manufacture, distribution, and marketing of beauty care, house hold, health care, and hair care products in the United States and internationally. It sells its beauty and health care products mainly through its direct sales force, food and household products through retail outlets and hair care products primarily through brokers.

Company has spun off its Sally Beauty business due to its strategy of expanding distribution channels that directly compete with Sally Beauty. Sally Beauty is the largest distributor of beauty products and operates more than 2,700 Sally Beauty Supply stores worldwide. Now, Alberto-Culver has lost this benefit and the business has also come under pressure since Sally Beauty contributed about 63% of the company’s revenues and profits. Competition from large players like Procter and Gamble and L’Oreal is likely to become tougher as the company used to sell its competitors’ products along with its own products through Sally Beauty. On the other hand, spin-off has eased off the pressure on Sally, which is in a mood to offer products that compete with Alberto-Culver.

On the profitability front, stabilizing oil prices could aid company’s operational performance. Nonetheless, weakening dollar has encouraged foreign companies to import raw materials from US, which is tightening the supplies. Alberto-Culver does have a strong brand like Nexxus, which was one of the major drivers for fiscal 2006 performance. However, management does not expect the same level of growth in 2007 from Nexxus, as there is no strong pipeline in that brand unlike fiscal 2006. Further the company anticipates over 40% downslide in its volumes in the second quarter. Factoring all these elements, the scrip does not look an exciting investment opportunity in the one-year time frame.