Blue Stuff's shift to stores causing cash flow problems
Sunday, June 8th 2003, 12:00 am
By: News On 6
Blue Stuff Inc.'s plan to shift sales of its emu oil ointment from infomercials to store shelves is causing some "financial difficulties."
The Oklahoma City company has told shareholders it's delaying an offer to repurchase shares of the closely-held private company, part of its restructuring plan.
Blue Stuff has sold millions of dollars in ointments through infomercials and the Internet. The company wants to shift its business strategy from direct sales to retail stores.
Debra Murray, daughter of Blue Stuff founder and company President Jack McClung, said the company is having cash flow problems during the transition.
The company's offer still stands to repurchase stock from shareholders for $2 per share plus 8 percent annual interest from the date of purchase, she said. Shareholders paid $2 a share soon after Blue Stuff was incorporated in 1998.
Blue Stuff has seen a rise in sales of its emu oil pain-relief cream. Sales have rocketed from $558,000 in 1999 to $82.9 million last year.
The tremendous growth has garnered the company honors, most recently last month's Venture of the Year Award from the Oklahoma Venture Forum and Oklahoma Investment Forum.
But the company suffered late last year when it agreed to a $3 million settlement of a Federal Trade Commission complaint that Blue Stuff advertisements made unsubstantiated claims about the concoction.
The FTC focused on 30-minute infomercials broadcast nationwide that claimed the products relieve "excruciating sciatic nerve pain," because of "crushed vertebrae" and "awful" pain because of a brain tumor. Blue Stuff admitted no wrongdoing in the settlement.
Chief Financial Officer David Robinson said the company's new focus on wholesaling means Blue Stuff this year likely won't produce half the sales revenue that it booked last year. The retail price of Blue Stuff is 40 percent higher than the wholesale price it charges its new customers, such as Eckerds, Walgreens and Love's Country Stores.
The new business model has prompted cash flow problems, Robinson said. The company had to switch from billing individual customer's credit cards, which are paid off within days, to billing retailers, which typically settle bills one to three months after receiving them.
But the company will save on other costs, such as advertising. Last year, Blue Stuff spent $40.6 million on advertising, nearly double what it spent to produce its products.