Natrol, Inc. Announces Second Quarter 2006 Earnings

CHATSWORTH, Calif., Aug 14, 2006 (BUSINESS WIRE) -- Natrol, Inc. (NTOL) , a leading manufacturer and marketer of nationally branded nutritional products, today announced that it had recorded operating income of $0.3 million and net income of $0.1 million on net sales of $16.6 million for its second quarter ending June 30, 2006.

Net sales in the second quarter decreased 15.5% or $3.0 million compared to net sales of $19.6 million in the second quarter of 2005. The Company recorded operating income of $0.6 million and net income of $0.3 million for the second quarter of 2005.

The Company's gross margin increased to 43.4% for the second quarter from 38.4% in the same quarter of 2005. The gross margin also improved relative to the first quarter of 2006 when the Company recorded a gross margin of 40.7%
For the six months ended June 30, 2006, the Company recorded operating income of $0.3 million and net income of $0.2 million on net sales of $33.5 million compared to an operating loss of $0.3 million and a net loss of $0.3 million on net sales of $37.3 million for the six months ended June 30, 2005. The Company's gross margin increased to 42.0% for the six months ended June 30, 2006 compared to 37.0% for the six months ended June 30, 2005.

"This is our second consecutive quarter of profitability," said Wayne Bos, Natrol's President and CEO, when making the announcement. "We have achieved profitability by being sharply-focused on the core business. Revenue was down during the second quarter because we did not introduce new products to the level that we did in same quarter of 2005 when we introduced approximately $2 million of new Natrol items. Repeat sales on these items have not been strong. It is a testament to the Natrol brand that our core, established products showed growth. A second contributing factor to our decline in sales was our intentional exit from unprofitable portions of the contract manufacturing business. This contributed to $0.5 million of the drop in sales. Lastly, our Prolab business remains soft, particularly outside the US and declined $1.3 million relative to the second quarter of 2005. We believe that our UK subsidiary, which will begin selling product during the latter part of the third quarter, will help strengthen Prolab sales.

"To compensate for the top line, we have initiated prudent cost controls and begun many projects focused on improving our gross margins through improved purchasing and manufacturing efficiency. The many projects we have initiated regarding our gross margins are producing results, allowing us to better last year's year-to-date performance, in spite of additional staffing at the executive level and the implementation of option expensing rules which cost us approximately $0.4 million compared to last year. Our positive performance year-to-date is a direct result of our following our business strategy, the first priority of which is to strengthen our core business."

About Natrol
Founded in 1980, Natrol, Inc. (NTOL) is a diversified nutrition company that manufactures and markets premium-branded nutritional products, functional teas and sports fitness products under the Natrol(R), Laci Le Beau(R) and Prolab(R) Sports Nutrition brands. Natrol markets more than 200 nutritional products designed to meet a wide range of consumer needs. The products are available at more than 54,000 food, drug, mass market and independent health food stores, catalogs and Internet sites, gyms and specialty stores nationally and in select foreign countries. For more information, visit

The statements made in this press release which are not historical facts including statements regarding expectations for future growth of revenue and profits and trends concerning net sales, are forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. As a result of a number of factors, our actual results could differ materially from those set forth in the forward looking statements. Certain factors that might cause our actual results to differ materially from those set forth in the forward looking statements include our ability to define and implement our business strategies, adverse trends in the dietary supplements industry, intense competition, adverse effects of unfavorable publicity regarding particular products or our industry generally, our dependence on the introduction of successful new products, our ability to gain market share and shelf space in each of its distribution channels, our experiencing high rates of product returns, and adverse government regulation, as well as those factors set forth under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2005 and in our other filings with the Securities and Exchange Commission.

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