RXSD Says Relationship with Wal-Mart Intact; Wall Street Agrees
Published: Tuesday, December 01, 1998
BOCA RATON, FL—In response to speculation about the stability of Rexall Sundown’s (RXSD) relationship with Wal-Mart (WMT), including sources interviewed by the Miami Herald that said WMT may be cutting back on orders for Rexall Sundown (RXSD) products because of recent questions in the press about product quality, RXSD President Damon DeSantis says the company has no indications that this is true. “Short sellers will look to create rumors,” DeSantis says. “We don’t respond to rumors.”
RXSD said, in a recent company phone call with analysts to discuss its anticipated 1Q99 sales and earnings estimates, that sequential sales did not decline at Wal-Mart and that there was no downside in RXSD’s relationship with Wal-Mart.
Matthew Patsky, managing director of Boston-based Adams, Harkness & Hill, agrees with the company. “The indications we had were that this [Wal-Mart cutting RXSD orders] was not the case,” Patsky says.
According to Yudi Bahl, an analyst with Piper Jaffray in Minneapolis, the Wal-Mart rumors are just rumors. “If there really was a quality issue, Wal-Mart would probably throw every product out,” he says.
Rexall’s stock suffered a one-day tumble of 41% on Nov. 5, to $13.06/share, after the company said it would miss analysts’ 1Q99 sales estimates by about $30 million and 1Q99 earnings estimates by more than $.08/share. Rexall has lowered its own projected growth estimates for the next quarter to 20% to 25%, down from 25% to 30%, according to DeSantis.
“We like to give comfortable guidance to Wall Street,” DeSantis says. “Last year, the industry grew over 30%. This year, it’s down in the low teens. Rexall’s estimates are that industry growth will be back in the midteens by the middle to the end of 1999,” DeSantis says.
“Rexall released its anticipated numbers very early. It was very professional, and they deserve a lot of credit,” Patsky says.
In related news, Raymond James cut RXSD to Accumulate from Buy. Yet, in the recent Time magazine article “Herbal Healing,” RXSD is listed as a stock to invest in.
RXSD’s stock performance after the earnings announcement prompted the filing of shareholder class-action lawsuits, which Wall Street generally ignores, according to both Patsky and Bahl.
“The lawsuits are totally without merit, and we will defend ourselves,” DeSantis says.
In other news, RXSD in November launched its Rexall Showcase International MLM line in Taiwan, and, at the recent NationsBanc Montgomery Securities Brands ‘98 conference in New York, the company said it is looking to open markets for Showcase in Japan and Canada in 1999, Europe in 2000, and Latin America in 2001. RXSD says it will increase advertising in 1999 for Rexall Sundown by fivefold and has signed a contract with Jeopardy TV host Alex Trebek to promote the introduction of Rexall’s new Twist and Learn label for the entire Sundown Herbals line.