Picture Darkens for Imaging Company in Sales Slump
New Image Industries started with a bang. The company first sold stock to the public in August, 1989, and within a few months, investors had bid the shares up from $6.50 to more than $15. In December, one analyst even predicted that the company’s profits would grow 50% to 100% a year for the next three years.
New Image, based in Canoga Park, makes computer systems that generate before and after video images, showing hair stylists, for instance, the effect of a new coif on a customer. These days, New Image executives know what it’s like to see their company’s financial picture suffer through a before and after treatment.
In recent months, New Image’s sales to beauty parlors--a big market for the company--slowed precipitously, and a deal to sell a large number of the systems to a diet-center chain fell through. As a result, New Image lost $956,000 in its latest quarter, contrasted with a $229,000 profit a year earlier, and sales tumbled 18%. Meanwhile, its stock closed Monday at $1.88 per share.
Adding to its woes, the company and four of its top officers last week were slapped with a class-action suit filed by a shareholder who claimed that the executives had issued misleading statements to jack up the company’s stock price. The suit also claimed that some New Image officers sold a combined 100,000 shares of the stock at a premium in March, knowing that the company was having financial problems.
New Image, saying it had not seen the suit, declined to comment. New Image also did not return calls seeking comment on other aspects of its performance.
There is more than one shareholder who has been stung by New Image’s performance. Hathaway & Associates, a Rowayton, Conn., money management firm and the largest institutional shareholder in New Image, has taken a paper loss of about $1.4 million on shares that it bought for an average price of about $10.
“New Image looked like it had a product with demonstrated value,” said Carl E. Hathaway, president of the Connecticut firm, recollecting when it bought the stock.
One of New Image’s biggest problems is that its sales to beauty salons seem to have fallen off a cliff. New Image does have other markets, but beauty salons were the company’s bread and butter. Sales of the “New Image Salon System” fell more than 50% to about $425,000 in the latest quarter from a year earlier. That may be because big beauty parlors with enough money to spend on the pricey computer systems (the original model sells for more than $23,000) have already bought them. Smaller beauty parlors may not have the money to buy the machines.
New Image did make up for some of the lost beauty parlor sales with new devices sold to dentists and oral surgeons, so total revenues did not fall as badly as sales to beauticians. Then, in September, the company introduced a newer, cheaper model of the system that sells for about $10,000. But it’s too soon to know if the machine can resuscitate New Image’s sales.
Perhaps a bigger disappointment for New Image came when Nutri/System, a diet center chain, decided not to go ahead with plans to use New Image systems to show customers how they might look after losing a few pounds. New Image never released predictions of how large its sales to Nutri/System might have been.
Responding to the poor sales, New Image closed its three regional sales offices and cut its work force by about 29% to 78 on Oct. 8 from 110 on June 30. Meanwhile, the company has announced plans to begin selling this month a new system for beauty parlors that can be operated more simply by customers.
And New Image said it struck a deal with Akzo Corp., a Dutch conglomerate whose products include paint, under which New Image will get $75,000 to develop software that would allow Akzo customers to see how their businesses or houses would look with different paint colors. If Akzo decides to market the product, the deal would lead to more sales.
Based on the cost cutting and the new products, in September New Image predicted that it would show a profit in its December quarter. But in a statement last month, the company seemed to back away from that position.
New Image Industries At A Glance New Image Industries makes computer systems that help beauticians, architects and other designers simulate before and after pictures for use in selling their products and services. The Canoga Park company, which first sold its stock to the public in August, 1989, has 78 employees. In millions; for quarter ended: Sales Net Income (Loss)
