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22 Mar 1996
MOODY'S ASSIGNS Baa3 RATING TO ALBERTO-CULVER COMPANY'S CONVERTIBLE SUBORDINATED DEBENTURES ISSUED UNDER RULE 144A
New York, 03-22-96 -- Moody's Investors Service assigned a Baa3 rating to Alberto-Culver Company's convertible subordinated debentures, due June 30, 2005. The rating is based upon the company's position as the world's largest specialty distributor of professional beauty supply products, as well as its well-known consumer hair care brands., but also reflects the increasingly competitive environment in the marketing and distribution of hair and beauty care products. Moody's rating also incorporates Alberto-Culver's moderate leverage and conservative financial policies, as well as its position as a holding company. This is the first time Moody's has rated the debt of this company. These securities have been sold in a privately negotiated transaction without registration under the Securities Act of 1933 (the Act) under circumstances reasonably designed to preclude a distribution thereof in violation of the Act. The issuance has been designed to permit resale under Rule 144A.
Alberto-Culver is the largest specialty distributor of professional beauty and hair care products through its 1,536 Sally Beauty stores in the U.S., U.K., and Japan. Sally has successfully expanded to generate about half of Alberto-Culver's sales and a larger percentage of its profits. However, notwithstanding Sally's valuable niche market position, maintaining its historically high operating margins could be a challenge, given pricing pressures in the hair care and beauty products segment and the increasingly competitive retail environment.
Moody's said that Alberto-Culver enjoys good brand recognition in its hair care products, which include the Alberto VO5, Consort, TRESemme and other Alberto brand name shampoos and conditioners, hair styling and hair dressing products. However, while some of the company's styling products enjoy a strong market share, its value-priced shampoo line remains a low margin contributor to profitability and has a modest market share. Furthermore, Alberto-Culver competes in the shampoo and conditioner segment with some very significant market players, which possess a wider brand offering as well as greater financial flexibility. In addition, as new product formulations are increasingly used by industry players to convince the value-conscious consumer of the value-added of a particular brand of cosmetic or personal care product, Alberto-Culver is likely to see an increasing need for product development if it is to increase the market presence and returns of its product offerings. Alberto-Culver has a number of strong niche positions in some small household and grocery segments, such as Static Guard anti-static spray, Mrs. Dash sodium-free salt alternative, and Molly McButter cholesterol-free dairy sprinkles. The company also produces the value-priced SugarTwin artificial sweetener, a smaller market player which is marketed at the retail level and to institutional food services. While some of the company's grocery products dominate their niches, the segment is marginally profitable and successful new product introduction remains a challenge.
Alberto-Culver has been successful in creating a leadership market position in several of its brands internationally. Several of the company's Alberto VO5 hair styling products have leading shares in markets such as the U.K., Canada, and several Latin America countries. While the company's shampoo line is not a significant player internationally, the company, through its Cederroth subsidiary, has strong niche products in toiletries and several grocery products. Alberto-Culver's strong international niche position in grocery products is particularly pronounced in Scandinavia, where the company's antacid, bandages and reduced sodium salt dominate their niches.
Alberto-Culver was founded four decades ago with the purchase of Alberto VO5 conditioning hairdressing. Since then, VO5 brand sales have increased from $100,000 to $300 million. The company purchased Sally Beauty Company in 1969, and has grown the chain from the original 12 stores to over 1,500 stores, including a presence in the U.K. and Japanese markets. Alberto-Culver also recently acquired St. Ives Laboratories, Inc., thereby adding St. Ives' Swiss Formula line of hair and skin care to its product line. Since its founding, the company has introduced several product line extensions to the Alberto VO5 line, including concepts where the company was the pioneer in new product introduction, such as Alberto VO5 Hot Oil Treatment. Alberto-Culver also has introduced FDS feminine deodorant spray and new hair care products, such as TRESemme and Consort Hair Spray, as well as other niche household and grocery products, such as Static Guard, Mrs. Dash and Molly McButter. With an increasing focus by Alberto-Culver's new management team on profitability, product line enhancements of the company's hair care lines, and continuing domestic and international expansion of Sally stores, this is a time of transition for the company. Further portfolio refinements through both divestitures and acquisitions are likely, Moody's added.
The convertible subordinated debentures are issued by Alberto-Culver Company, which is a holding company for Alberto-Culver USA, Inc., Alberto-Culver International Inc. and Sally Beauty Company, Inc., as well as the company's other subsidiaries. Moody's rating incorporates the fact that, while Alberto-Culver borrows mostly at the holding company level, holding company debt is structurally subordinated to existing debt and any future indebtedness created at the subsidiary level.
Alberto-Culver Company, based in Melrose Park, Illinois, develops, manufactures, distributes and markets hair care and other branded consumer products. The company is also the world's largest specialty distributor of professional beauty and barber products.
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