Savvy marketing won't save one-product Matrixx firm
Published in Suburban Chicago Newspapers 10/15/03
Dear Mr. Berko: Several years ago I wrote to tell you that I had bought 200 shares of Matrixx at $32. I know I should have sold it when you told me to at $22, but now it's $10 and sales have doubled and earnings have improved greatly.
What is your opinion of Matrixx today? With the fantastic improvements in sales and earnings do you think it would be wise to buy 200 or 400 more shares at $10? Please give me your best recommendation and tell me what to do.
D.P.
Boca Raton, Fla.
Dear D.P.: Matrixx Initiatives Inc. (MTXX-$11.30) is the company that makes the Zicam formulary and that is its sole product.
MTXX has aggressively spawned menagerie of new Zicam products. From its original Zicam Nasal Spray for colds, MTXX now makes and markets an expanding line of Zicam stuff such as Zicam Allergy Relief, Zicam Cold Remedy Swabs, Zicam Kids Size Cold Remedy, Zicam Extreme Congestion Relief, Zicam Sinus Relief, Zicam Nasal Moisturizer, Zicam Cold Remedy Nasal Gel, Zicam Cold Remedy Chewable, Zicam Cold Remedy Oral Mist, Zicam Cold Remedy Rapid Melts, plus a few more notions and potions on the Zicam drawing board.
Wonder of wonders, it appears that this homeopathic remedy seems to work. Several medical journals, including the Ear, Nose and Throat Journal, indicate that Zicam significantly reduces the duration and severity of the common cold. The magic bullet in Zicam is zincum gluconium nasal gel and according to the ENT Journal, if taken within 24 to 36 hours of the onset of a cold, it may improve your recovery time by 50 percent.
The stock market was in warp drive when you paid $32 a share for MTXX in January of 2000. Your letter to me in March of 2001 was the first time I ever heard about MTXX.
I told you that this was a small one-product company and that revenues would begin to flounder, money would become a problem, losses would begin to mount and the stock price would founder.
Well, revenues grew from $13 million in 2001 to $24 million last year and MTXX may post 2003 revenues of $30 million this year. I was wrong! Money doesn't seem to be a problem. The company has plenty of cash and a strong credit line. I was wrong again! To my surprise, MTXX posted its first profit of $12.6 million in 2001 and in 2002 MTXX earned almost $5 million. I was wrong once more!
However, the shares did crash from $22 to $9.
Management has taken a page from Schering-Plough Corp., the makers of Afrin. Schering now produces Afrin Sinus, Afrin Cold, Afrin Allergy, Afrin Original, Afrin Extra Strength, Afrin Severe Congestion with Menthol, Afrin for Children etc. In the last five years, this strategy has tripled Schering's sales of Afrin.
MTXX wholesales its products to Walgreens, Kmart, CVS, Eckerd, Target, Albertsons, Safeway and other major retailers. Management's promotional strategies have increased brand presence, brand awareness, consumer sales retailer participation and product demand.
MTXX wants Zicam to be in every mom-and-pop store, convenience store, newsstand and general store in every small town that dots a an Auto Club map across the United States. Revenues should increase over the coming years but eventually demand will reach saturation point and revenue growth will come to a standstill.
There's also the caveat that is inimical to one-product companies, which is the mousetrap factor. Zicam appears to work, but what if (there's always a "what if") a much larger company produces a much better product? What if medical research discovers a cure for the cold? What if Walgreens, CVS, Eckerd's, Longs Drugs, Duane Reade or Rite Aid decide to market their private brand of zincum gluconium, as they have with many other popular products? As long as the sky is blue, the grass is green and water flows downstream it's bound to happen.
There may be a few more points in MTXX but not enough to justify owning the stock. Even though MTXX has zero debt, a strong cash flow, growing revenues, increasing earnings, a good product and only 9.5 million shares outstanding, I doubt it will return to the low $30s. I don't think there's much downside to the stock at this time.
So I would suggest that you keep your 200 shares and if the stock moves to the low teens, sell it. And if it doesn't reach the low teens by year end, sell it in December.
Malcolm Berko appears on The News Sun Business page Tuesdays through Thursdays. Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429. Or e-mail him at malber@adelphia.net.
10/15/03
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