Del Laboratories, Inc. Business Information, Profile, and History

History of Del Laboratories, Inc.

Del Laboratories, Inc. manufactures, markets, and distributes cosmetics and proprietary over-the-counter pharmaceuticals. Its main cosmetics products are nail care and nail color products, color cosmetics, beauty implements, bleaches and depilatories, personal care products, and other related cosmetics items. These are marketed under such brand names as Sally Hansen and Naturistics. Its pharmaceutical products include oral analgesics (of which Orajel is the best known), acne treatment products, and ear drop medications.

The First Decade: 1961--71

Del Laboratories was founded as Maradel Products, Inc., with headquarters in New York City, to acquire going concerns in the health and beauty aid market and was incorporated in 1961. Martin E. Revson, former sales manager and executive vice-president of the giant cosmetics firm Revlon, Inc., was Maradel's largest single shareholder, with one-quarter of the stock, when he became its chairman in 1963. The younger brother of Charles and Joseph Revson, who founded Revlon, Martin Revson left the company in 1958 to strike out on his own. Revlon took a sizable stake in Maradel and held it until 1983. Martin Revson assumed the chairmanship after the expiration of a five-year agreement not to take an active part in a competing concern.

Maradel acquired The Theon Co., Inc. and an affiliate in December 1961 for $2 million. In 1962 it purchased M. Pier Co., Inc. and its subsidiaries for $3 million, Waval-Thermal Company and Beaute Vues Corporation for nearly $3 million, Sally Hansen, Inc. for $1.5 million, and Compstone Company Ltd. In 1963 it acquired Commerce Drug Co., Inc. and House of Tre-Jur, Inc. In all, Maradel acquired 11 companies in its first two years, for a total of $16 million.

The businesses that it purchased had sales of $8.1 million in 1961 and net income of $611,000. This grew to $9.1 million and $660,000 in 1962, the year the company went public, selling nearly 40 percent of its outstanding shares at $13 a share. More stock was offered the following year, at $20.50 a share.

With these purchases Maradel was manufacturing cosmetics; hair, bath, and dental preparations; and proprietary drugs and sundries. But the result, according to Dan K. Wassong, who joined the company in 1964 and became its president and chief executive officer in 1969, was "chaos.... No single acquisition was large enough to give Maradel the core of a cohesive executive team. Compounding this was the fact that many of the original owners who operated the acquired companies left before parent company management could be developed in depth. Additionally, these 11 enterprises had widely scattered manufacturing facilities, and the duplication in cost was staggering. Maintaining cost and quality control was virtually impossible."

Maradel lost $863,000 in 1963 and $44,300 in 1964 as a result of these problems and also its effort to franchise two newly conceived products. New management then took over, including former executives of other large companies in the cosmetics field. Most of the newer products were dropped and emphasis placed on product lines that had proven to be profitable. The eight manufacturing plants, plus warehousing and headquarters, were consolidated in Farmingdale, New York, except for packaging and components in Canajoharie, New York, the site of the Compstone subsidiary. By contrast, sales and marketing were decentralized. Four of the acquisitions were written off.

By the end of 1966, the year the company was renamed Del Laboratories, Maradel had regained its momentum. Net sales reached $12.1 million that year, and net income was $739,000.

In 1967 a third stock offering, at $11 a share, enabled Del to buy Rejuvia, Inc., which made eye makeup, nail polish, and lipstick retailed under the Flame-Glo (later Flame Glow) name. The company also acquired Blanchard Parfums Corporation, producer of popular priced fragrances; House for Men, Inc. (men's toiletries), and LaSalle Laboratories, Inc. (also men's toiletries) in 1967.

Del Laboratories' product line in 1967 included nail care products merchandised under the Sally Hansen label. Most prominent of these was Hard as Nails, believed to be the largest selling nail hardener on the market. About 30 eye makeup products, such as eye shadow and mascara, were being marketed under the Lashbrite name. The Tre-Jur division was making popular priced bath powder, soaps, and similar products, chiefly for Christmas. The Compstone division was producing sunglasses, with the main lines Oleg Cassini and Oculens.

The Nutri-Tonic division was making home permanents, hair lotions, shampoos, and related products, including Life hair conditioner and Go-Straight hair straightener. The Tiz division was distributing shampoos, hair colors, and eyelashes to the professional market. Commerce Drug Co., the proprietary medication unit, was carrying ophthalmic and pediatric preparations in addition to such popular items as Ora-Jel (later Orajel) for toothaches and Trialka for digestive problems.

Del Laboratories was in the red again in 1969, when it lost $2.1 million on net sales of $15 million. The company also lost money in 1970 before returning to profitability in 1971, when it had seven product lines in three marketing groups. Commerce Drug, the largest division, was contributing about one-third of the company's overall sales volume and a larger share of the profits. Its line of 60 proprietary drugs and 14 natural/organic vitamins included 13 nationally advertised products. Flame-Glo, according to Wassong, had been successfully transformed from a line oriented to "a mature audience" toward one "aimed at a youthful, contemporary market." The fragrance lines, accounting for about five percent of Del's cosmetics group sales, consisted of Parfums Blanchard and Parfums Schiaparelli, which was acquired in 1968 and imported fragrances from France.

More Products, Higher Sales: 1970--95

The 1970s was not a good decade for the U.S. economy, but Del Laboratories was solidly profitable. Sales grew by 13.7 percent for the 1970--74 period, compounded annually, while earnings increased at an annual rate of 7.4 percent during 1970--73. The company began paying dividends annually in 1973 and purchased a facility in Little Falls, New York, for production and warehousing in 1974. Sally Hansen, Flame-Glo, and Ora-Jel did particularly well in the late 1970s, though Lashbrite products were discontinued in 1978. That year Del acquired the LaCross division of A.R. Winarick, Inc. Based in Newark, New Jersey, La Cross manufactured manicure implements. The company also had, in 1979, a Rejuvia line that included Vitamin E skincare products, brush-on peel-off masks, musk oil fragrances, and a Viganic line of medium-priced vitamins.

Del Laboratories had by far its best year yet in 1980, with net income of $3.6 million on net sales of $55.4 million. That year the company purchased the Propa pH acne care line from Ketchum & Company. Sally Hansen's Hard as Nails was doing particularly well in this period, accounting for half the $60 million-a-year nail care market in 1984 and holding third place in the $200 million-a-year nail polish market. The Sally Hansen division also was moving into facial cosmetics and by the end of the decade was turning out hair bleaches and depilatories as well.

During 1983--84 Del Laboratories introduced Natural Cold Wax, a depilatory; New Lengths, a fiber-based nail lengthener; and about 40 new Flame-Glo products or packages. The company acquired Chattem Inc.'s Quencher line of cosmetics in 1984 for about $5.5 million. Del's sales focus was the mass, rather than the middle, market, with Kmart Corporation its biggest customer. A Business Week article credited Wassong for the firm's success, quoting a company executive who said of him, "He knows what's selling and what's not. He makes a point of studying the competition." Revlon sold its 19 percent share of Del to Revson and Wassong in 1983.

After recording net income of more than $3 million in every year between 1983 and 1988, Del Laboratories stumbled in 1989, losing $1.8 million despite record net sales of $121.5 million because of a $2.5 million writeoff of unsold cosmetics inventory. Still especially lucrative was Commerce Drug, which accounted for 30 percent of sales volume and had a profit margin more than three times as high as the cosmetics lines. Its products now included Baby Orajel, Pronto lice shampoo, Propa pH skin astringent, Stye ointment, Boil Ease, Diaper Guard, Off-Ezy wart remover, and Arthricare arthritis cream. Del's sales remained flat in 1990, but the company earned $1.9 million.

Del Laboratories introduced Natural Glow, a line of 55 natural ingredient cosmetics, packaged with recyclable paper and plastics and supported by an expensive advertising campaign aimed at teenagers, in 1991. This line grew to 81 in 1992 and 111 in 1993. Naturistics, a new low-budget line of natural toiletries, also made its debut in 1991. In 1993 Del Laboratories sought to establish in-store boutiques in 250 mass-market outlets to house the company's bath and body products, color cosmetics, gift sets, and fragrances in a single 12-foot display. This promotion failed because retailers were unwilling to accept a combination of health and beauty aids and cosmetics in a single display. Nevertheless, Natural Glow displays were in 12,000 stores and Naturistics in 6,000 by mid-1996.

The Commerce Drug division changed its name to Del Pharmaceuticals in 1993. Sally Hansen introduced a professional line of its products during 1994--95 and had absorbed the Quencher line by the end of 1995. The LaCross line was integrated into the Sally Hansen line in 1994. The Flame Glow, Nutri-Tonic, Rejuvia, and Schiaparelli names apparently no longer were in use by 1996. In 1996 Del announced its fourth stock split since 1991 and the third consecutive year of dividend increases. Its net earnings had grown between 1993 and 1995 at a compounded annual rate of 28 percent on sales increases averaging 14 percent annually, thereby producing a three-year total return to investors of nearly 200 percent, counting stock appreciation as well as dividends.

Challenges and Changes: 1995--98

These results--and his 35 percent share of the company&mdash-abled Wassong to survive the largest sexual-harassment monetary settlement in the history of the federal Equal Employment Opportunity Commission, by which Del Laboratories agreed in 1995 to pay nearly $1.2 million to 15 plaintiffs who had worked for the chief executive as assistants. At a press briefing, according to Dallas Gatewood of Newsday, 11 of the 15 women told reporters that Wassong grabbed their breasts or stroked their buttocks, spoke about his sex life, cast profane slurs on their appearance, and urinated in his office bathroom with the door open. Ten of the plaintiffs said they were fired or forced to quit because of his behavior. Nineteen other former employees also testified against Wassong but were not entitled to damages because of a statute of limitations. Wassong, who had taken the title of chairman as well as president of Del in 1992, denied any wrongdoing in statements issued through lawyers.

By 1997 retailers were willing to accept a single display of Natural Glow and Naturistics products, so Del Laboratories sent one, measuring six feet square and housing 400 stockkeeping units under the Naturistics banner, to 5,000 discount stores. These products encompassed skin, bath, and body care, fragrances, and color cosmetics. Some 16,000 to 18,000 stores were receiving the Natural Glow cosmetics line at this time. Del's pharmaceutical products included Orajel--the world's leading topical oral analgesic--and Tanac (oral analgesics), Propa pH (acne treatment), Pronto (pediculicides), Arthricare (topical arthritis treatment), and Auro-Dri (an ear remedy).

Del Laboratories expanded its cosmetics offerings by acquiring the Cornsilk brand of oil-control makeup from Chattem in 1998 for $10.75 million, plus the assumption of inventory and certain liabilities. Cornsilk, consisting of oil-control loose and pressed powders, liquid foundation, concealers, and a new light coverage makeup, was being distributed to some 15,000 mass-market retail stores. It was placed under the Sally Hansen banner. Also under this banner were the LaCross division's nail and beauty implements, lip color and skincare products, bleaches, and depilatories. Del established its distribution center in Rocky Point, North Carolina, in 1997 and moved its headquarters to Uniondale, New York, in that year.

In 1997 Del Laboratories enjoyed its eighth consecutive year of record sales and profits. Of Del's $263 million in sales, cosmetics accounted for 79 percent and pharmaceuticals for the remaining 21 percent. Net earnings came to $13.1 million, of which cosmetics accounted for 61 percent and pharmaceuticals for the remaining 39 percent. The company's long-term debt was $44.4 million. Sales rose to $274.9 million in 1998, but net income declined to $11.1 million because of about $4.9 million in sales returns and inventory write-downs. The latter appeared to be related to Del's decision to ask retailers to divide Naturistics' display units by category. The full-line display units "kind of limited the brand to large discount stores," said a Del executive.

In April 1998 Wassong owned or held options to 32.8 percent of the company's stock. Revson held 15.6 percent of the stock. Both Wassong and Revson had the right of first refusal for the other's stock.

The products of Del Laboratories were being sold principally in the United States and Canada to wholesalers (in the case of pharmaceuticals) and independent and chain drug, variety, and food stores. Wal-Mart Stores, Inc. was its chief customer in 1997, accounting for 22.7 percent of sales. Advertising its products on television and radio and in magazines and in-store displays and promotional activities was a major expense for Del, accounting for $33 million in 1997, or 12.5 percent of total net sales. Sales outside the United States and Canada came to only about two percent of the total.

Del Laboratories had its principal manufacturing facilities in Farmingdale, New York, for both cosmetics and pharmaceuticals in 1997. There were also manufacturing facilities in Newark, New Jersey, and Barrie, Ontario.

Principal Subsidiaries: Del Laboratories (Canada), Inc.; Del Pharmaceuticals, Inc.; Tipsco, Inc.

Principal Divisions: Cosmetics; Del International; Del Pharmaceuticals; LaCross Implements; Naturistics; Sally Hansen.