With little bunny-eared tubes of makeup bearing evocative names like "In the Mood" and "Tie Me to the Bedpost," Playboy Enterprises Inc. hopes to boost sales of licensed products at upscale retailers to help offset the slump in its iconic magazine business.
By selling its licensed cosmetics at high-end stores around the globe, the company that popularized the centerfold aims not only to flesh out sales but also to make over the brand that most consumers still associate with men's magazines.
As Playboy's core publishing business has been hit by high paper costs, dwindling readership and declining ad rates, licensing — whether of makeup, apparel or nightclubs — has emerged as the bright spot within its empire, accounting for an estimated $600 million in global retail sales in 2005.
"The bulls on the stock have been emphasizing the licensing business as opposed to the core publishing business," said analyst David Miller of Sanders Morris Harris, adding that investors who are focused on the bottom line — operating earnings excluding taxes and financing costs — "hate the publishing business because it's a drag."
Analysts have called for Playboy to divide its slow growth and high growth businesses, but Chief Executive Christie Hefner has rejected any idea of spinning off the magazine, telling Reuters last month that publishing is still the "promotional powerhouse" of the company.
But an estimated 20 to 25 percent jump in Playboy's 2006 earnings per share will come from the entertainment and licensing divisions, according to the company.
Playboy's shares have risen more than 30 percent in the last 12 months and carry a forward-looking price-to-earnings ratio of 16.46.
In a research note issued Wednesday, Miller reiterated a "hold" rating on the stock, noting a "generally full" valuation, with shares trading at a premium to comparable media companies with niche-oriented cable networks.
Licensing accounted for just 8.2 percent of sales, but 26.7 percent of Playboy's operating profit in the last three quarters. By contrast, publishing generated 32 percent of sales but has lost money for the last three quarters.
Tie me to the bedpost
Hefner began cleaning up Playboy's licensing business in 1999 to escape what some refer to as its "fuzzy dice era," characterized by tacky, low-priced products.
The refocus on more upscale merchandise with distribution at high-end retailers — New York's Henri Bendel, London's Selfridges & Co. and Colette in Paris will carry the Playboy Beauty line — has been a priority since then, said Alex Vaickus, Playboy's president of global licensing. Playboy currently has 125 licensees operating 200 license deals.
"There aren't many brands that can participate in the breadth of categories that we can," Vaickus said.
Growth will come internationally and with the launch of new categories like fragrance and expanded men's apparel, he said. Playboy will also continue to roll out boutique stores around the world at the rate of three a year. A licensed nightclub atop a new tower at Las Vegas' Palms casino is slated to open this summer with clubs in Shanghai and London to follow.
The Playboy Beauty line by licensee High Maintenance includes a "Tie Me to the Bedpost" blush and "In the Mood" and "Not in the Mood" lipgloss bearing bunny-eared caps and boasting "stay-the-night" formulas.
High Maintenance CEO Kirk Summers said his goal was to focus on upscale products for women ages 18 to 29 who equate Playboy with sexy fun, rather than sleaze. "We were out to legitimize the Playboy brand," he said.
Reinventing brands to attract new generations and eschew outdated stereotypes is nothing new, said analyst Robert Routh of Jefferies & Co, who has a "buy" rating on Playboy. "That's what the company is doing and so far doing a good job of it. The ultimate goal is to maximize revenue and not cheapen the brand in the process," he said.