Natrol hit by low carb fall out

The company said it will focus on boosting sales of core Prolab sports nutrition and Laci Le Beau tea brands. It will do so by expanding its distribution network and increasing promotion of the brands within its existing customer base.

The company reported that sales decreased by 5.2 per cent during thesecond quarter to $19.6m compared to the same period last year, mainly dueto a fall off in demand for its Carb Intercept brand.

Sales of Carb Intercept fell by $3m during the second quarter.Sales of the Company's Prolab sports nutrition brand were $680,000 less inthe second quarter of 2005 than in the second quarter of 2004.

Due to the rising costs of goods sold the company's margins fell to three percent in the second quarter compared to seven per cent in the second quarter 2004. For the half year the company suffered an operating loss of $255,000 compared to an operating profit of $2.3m in the first half of 2004.

Natrol​ had launchedCarb Intercept in 2002 as a means of riding on the back of the craze forlow-carb diets started by Robert Atkins, the doctor who founded Atkins Nutritionals. The Atkins company is now in financialtrouble, filing for Chapter 11 bankruptcy protection earlier this month.

At Natrol sales of Carb Intercept have grown annually until the start of thisyear. Consumer interest in the Atkins high protein diet has waned due toincreasing criticism that it is not a healthy meansof weight loss, said the company's chairman and president, ElliottBalbert.

"The fall of Carb Intercept has been one of the sharpest productdeclines in the history of the company making it both stunning andunusual,"​ Balbert said in a statement. "Justas companies such as Natrol came to believe that the Atkins-stimulatedlow-carbohydrate diet phenomenon was more of a lifestyle change than a fad,negative publicity at the end of 2004 drove consumersaway."​

Carb Intercept works by using an enzyme to neutralize starch found inbreads, cereals, rice, pasta and other starch-containing foods. It remainsone of the company's top 20 brands by sales,bringing in gross revenues of $900,000 during the first half of 2005.

The company has responded with new product introductions such as Natrol's BrainSpeed. Natrol shipped $2m worth of BrainSpeed in the second quarter.

The company's gross profit decreased 19.4 per cent in the first half ofthe year and $7.5m for the three months ended 30 June. The primary reasonsfor the decrease in margin were inventory writedowns, primarily due to Carb Intercept, that were $614,000 larger during thefirst three months of 2005 than during the first three months of 2004.

Increases in the cost of raw materials used for Prolab, primarily whey,added an extra $396,000 in costs during the second quarter compared to thesame period in 2004.

"The precipitous decline in the sales of Carb Intercept, atrend that escalated in the second quarter of 2005, caused the company towrite down its Carb Intercept inventory in both thefirst and second quarters of 2005 due to a lack of sufficient consumerdemand to use on-hand raw materials and finished goods before thesematerials would have expiring shelf lives,"​ Natrolstated.

Still total input inventories rose at the end of the second quartercompared to the end of 2004, indicating the company is still not able tomove sufficient product fast enough. Raw material andpackaging supplies rose by 28 per cent, while stocks of finished good fellby 16 per cent.