Chantal’s Sales Figures Worse Than Expected
Facing a possible trading halt of its stock, Chantal Pharmaceutical Corp. released long-delayed quarterly financial results Wednesday that showed less-than-stellar sales of its flagship cosmetic wrinkle cream product.
The Los Angeles-based company said it lost $3.4 million on sales of $2 million for its third quarter ended March 31 and lost $4 million on revenue of $1.17 million for the three months ended Dec. 31.
Both sales and earnings figures were significantly worse than estimates by the handful of analysts who actively follow the firm. Despite that, investors saw some positive signs in a company’s statement that its sales are “very strong.” Chantal shares closed up 62.5 cents at $9.25 in heavy Nasdaq trading Wednesday, after initially falling as low as $6.50 following the company’s earnings report. More than 1.8 million shares changed hands. The stock’s 52-week high is $28.12.
The question of how quickly consumers are snapping up the pricey wrinkle cream, called Ethocyn, exploded into a major controversy for Chantal earlier this year. The company’s stock plummeted after several news reports that included accusations of the firm inflating its sales figures and engaging in questionable accounting practices.
In February, the company and its founder and chairman, Chantal Burnison, were named in a shareholder lawsuit that included similar allegations about overstated sales figures.
Chantal executives have defended the company’s accounting practices and steadfastly maintained that Ethocyn sales are strong. On Wednesday, they said again that the quarterly sales figures appeared unimpressive only because of conservative accounting practices recommended by an outside auditor.
Having missed several federal filing deadlines for reporting quarterly results, Chantal has been under intense pressure from investors and regulators to make a disclosure. Last week, Nasdaq officials told Chantal they would halt trading unless the firm filed 10-Q statements by Monday.
Under intense pressure, Chantal in February hired an independent auditor, Coopers & Lybrand, to determine if the firm’s traditional method of recognizing sales complied with generally accepted accounting principles. In the past, Chantal has recorded a sale on its books when the product was shipped to its distributor.
However, the company said Wednesday that Coopers & Lybrand had advised it to temporarily adopt a “cash basis” accounting policy in which sales are recorded only after payment is received from the distributor--a process that can take several months.
Chantal also said that as a result of reporting revenue on a cash basis, it incurred losses for the nine-month period, as opposed to income that would have resulted had it reported revenue under its former policy.
“This is an ultraconservative, worst-case scenario” for accounting for sales, said a New York-based investment firm that is a major holder of Chantal stock. “Sales that were made to consumers four months ago can’t be booked.”
The investor maintained that “underlying sales are very strong” based on her independent checks with major drugstore chains that carry Ethocyn.
Burnison also contended that Ethocyn sales are “very strong.” The company’s distributor has shipped “more than $20 million in product to its customers, the majority of which has been sold to customers . . . “ she said.
However, a source close to Chantal noted that a New York public relations company Burnison hired in February recently resigned the account in frustration. Several sources said there is growing unease among investors about Burnison’s management of the company, noting the delays in filing financial reports and the fact that the firm’s chief financial officer job has been vacant for about a year.
“That’s inexcusable,” one Southern California investor said about the vacant post. “The company has also gone into periods where they just don’t speak to people.”
