Beauty Direct pulls out of deal with distributor

By DITA DE BONI

Clicks and mortar cosmetics retailer Beauty Direct and Online will not merge with South Auckland-based distribution company CS Company, despite announcing the deal in early November.

The company told the Stock Exchange yesterday that it could not fulfil conditions in the agreement it had reached with CS. It is understood a part of the acquisition agreement between the two companies was conditional on the participation of a third party - thought to be a large cosmetics concern - that did not eventuate.

Chief executive Bronwen Evans would not comment on the aborted CS merger.

But she said Beauty Direct would continue to seek other strategic alliances, with $2.1 million set aside for investment opportunities.

The merger with CS Company - which would have effectively given CS around 77 per cent of Beauty Direct - would have boosted the e-tailer's earnings to $2.5 million and sales to more than $19 million. In exchange, Beauty Direct would have used its cash assets to help expand CS' distribution business, mostly in Australia.

Beauty Direct also said yesterday that its failure to secure the support of suppliers to export some product into Australia had contributed to losses of $522,000 in the six months to September 30. That figure includes $50,000 in float costs not charged in last year's accounts.

Because sales of $226,000 for the half year were 46 per cent below forecast, costs would be pared back, Ms Evans said.

Above-line advertising in Australia would stop. Roughly $50,000 in marketing expenses had been outlaid in Australia with the initial backing of main cosmetics suppliers, "only to have this decision overturned by [the suppliers'] Australian counterparts."

Directors will take no fees in the financial year and Ms Evans' salary will be reduced by an unspecified amount.

Aided by the cost-cutting measures, the company projected an operating deficit of $205,000 for the second six months of the year.

Ms Evans would not name the suppliers that had so far stymied Beauty Direct's efforts in Australia, saying only that the company was "constantly in talks" with them.

"What we have is a revolutionary business model ... we are working out together how to make it work so everyone wins," she said.

Beauty Direct's largest customer base has shifted from Wellington - where the company has a physical presence - to Auckland. Ms Evans says the client pool numbers around 5500, a figure that continues to grow by 15 per cent a month.

Beauty Direct listed in March, after floating at 25c a share. Shares last traded at 9c.