I used to joke, especially to friends who sold it, that the world was under Mary Kay invasion. On a drive home from work I’ll see about three cars on the highway – either pink or sporting the Mary Kay logo; I’ve had family members and complete strangers passionately try to convince me it was worth what little time I have to join the pink force; every time I turn around, someone I know has been recruited. Through my continuing education of the financial world I’ve found that the possibility of a Mary Kay takeover really isn’t too far off.
Ok, so maybe Mary Kay won’t take over the world. Perhaps it’s the strategy the cosmetics giant has literally “banked” on – the business of direct selling. Side stepping the use of a retail location to reach customers is something many businesses and entrepreneurs are finding worthwhile.
Direct selling is ideal for companies manufacturing a product that may be hard to detail or explain using traditional advertising means, or to for those who find it hard to target a demographic using traditional media. Distributors have the opportunity to crawl through the cracks to find buyers and work on their own time. Companies using distribution networks aren’t urged to provide insurance benefits, have a lower initial capital investment and usually have relatively low overhead costs.
Obviously the marketing method is not something proprietary to Mary Kay, but the company was one of the first to take direct selling global nearly 40 years ago. Direct selling is a booming distribution strategy in the U.S., and according to a Canacord Adams research report, China and Japan are right behind us. XELR8 Holdings Inc. (AMEX: BZI) has used the strength of distribution selling and the launch of a new product to pull itself out of possible delisting with AMEX.
The company’s reported net loss of nearly $4.6 million for fiscal 2006 stirred doubt as to whether the company was strong enough to survive, prompting AMEX action. XELR8 was scheduled to appeal delisting by addressing the AMEX Qualifications panel later this month.
Good news for XELR8 came through the mail just in time. This morning the company issued a press release announcing an end to the ordeal, reporting it received a letter from the AMEX stating the company is now in full compliance.
“The company is thrilled that they have regained compliance with the listing,” said Dodi Handy, president and chief executive of Elite Financial Communications Group, IR firm for XELR8, in an MN1 interview. “Listing on the national exchange is very important not only to them but clearly to their shareholders.”
Dodi added the company has experienced a transformation through the launch and distribution method of Bazi, the company’s latest nutritional drink that has become a hit among professional athletes, customers and distributors.
Bazi contributed to a 45 percent increase in XELR8’s national network of distributors and customers and was responsible for 68 percent of total sales for the first quarter.
“The continued growth in the distributor network is driven largely by the popularity of Bazi,” said Handy. “The company is hoping to see those trends continue so that they can continue to strengthen the fundamentals of the company.”
Even in a $250 billion food industry with healthy food and drink alternative trends on the rise, businesses in the industry have to observe and cater to the demands of consumers. Those consumers truly looking for a life altering product can be hard to find using traditional advertising. Using distribution networking and the launch of Bazi, XELR8 has found a way to gain exposure and success.
“We can credit virtually all of our recent success and positive momentum to fast growing demand for Bazi and the powerful business building opportunities that Bazi is providing for those populating our independent distributor network marketing team. The outlook for XELR8 looks to be very exciting,” said John Pougnet, CEO and CFO of XELR8.
Pougnet gave insight to what the company expects to achieve in the upcoming year in a conference call Tuesday. The company announced its first-quarter sales, reporting revenues of $870,000 – a 61 percent increase from $539,000.
Gross profit margin on sales rose to 65 percent from 55 percent; as of March 31, 2007, XELR8 had about $1.46 million in cash, $2.01 million in total assets, and $1.26 million in working capital, total shareholder equity of $1.39 million and no long-term debt.
As the numbers rise, so do the distributors and customers; nearly 700 distributors joined the direct selling network for the month of March alone, brining the number over 4,000. The company is well on its way to its goal of 6,000 by the end of the third quarter.
“If we continue to maintain the positive trends that we are enjoying in the first quarter sales and distributor growth, it is very possible that we will remain on pace to achieve cash flow break even perhaps even cash flow positive in the very near future,” said Pougnet.
Net loss for the first quarter totaled $1.36 million, down 12 percent from the previous net loss of $1.55 million.
Pougnet said he expects the company to continue to increase revenue, reduce expenses and report positive results.
“By maintaining strict expense discipline, coupled with ongoing strong sales momentum, it is reasonable to assume that we will have sufficient working capital to see us through the end of the year, and then some,” he added.
Safe from AMEX delisting, XELR8 can resume focus on its growing network of distributors and customers, and its plans to continue producing positive results. The significant ramp in sales reflects a unique product and a company hard at work to pull itself out of rough spots, maybe someday leveraging itself to join the Mary Kay invasion.
Shares of XELR8 up 12 percent, trading at $2.64 Wednesday afternoon.
