Achieves Net Sales of $21.1 Million and Earnings of $0.04 Per Diluted                  Common Share for the Second Quarter of 2009      Generates Net Cash From Operating Activities of $5.8 Million for the                          First Six Months of 2009 

AZUSA, Calif., Aug. 6, 2009 (GLOBE NEWSWIRE) -- Physicians Formula Holdings, Inc. (Nasdaq:FACE) ("Physicians Formula" or the "Company") today announced financial results for the three and six months ended June 30, 2009.

Results for the Second Quarter of 2009

Net sales were $21.1 million for the second quarter of 2009, compared to $22.9 million for the same period in 2008. Net income for the second quarter of 2009 was $0.6 million, or $0.04 per diluted common share, and includes a non-cash intangible asset impairment charge of $1.1 million, or $(0.05) per diluted common share after-tax. This compares to a net loss of $(2.0) million, or $(0.14) per diluted common share for the second quarter of 2008.

The Company noted that while net sales were down slightly in 2009 versus the prior year period, this was the result of a larger decline in gross sales which was almost entirely offset by a lower returns provision versus the second quarter of 2008. The Company stated that virtually the entire gross sales decline versus the second quarter of 2008 was driven by three distinct factors: 1) the loss of a major customer, 2) the reduction in promotional product launches and 3) continued inventory de-stocking by the Company's retail partners, albeit at a lower rate than experienced in the first quarter of 2009. The lower returns provision was triggered by the decrease in total expected returns compared to prior periods, especially from the elimination of returns from a major customer that is in the process of discontinuing the Company's products, and from the Company's decision not to repeat the higher-priced promotional kits in 2009 that were featured prominently in the Company's promotional strategy in the first six months of 2008.

Ingrid Jackel, Chairwoman and CEO of Physicians Formula, stated, "Our sales and earnings results for the second quarter indicate that, while the consumer environment continues to make this a challenging time for the Company, we have been able to adapt well to the three distinct factors that have created the majority of the negative impact on our business this year. The consumer environment will likely continue to be difficult through the end of this year, but we look forward to expected improvements in 2010 when our new product platforms will position us for strong success in the marketplace."

The Company further noted that the substantial increase in gross margins in the second quarter of 2009 versus the first quarter of 2009 and the second quarter of 2008 were primarily driven by the lower returns provision, as well as from efficiencies in its manufacturing operations. In addition to these factors, cost controls implemented during the first quarter of 2009, including headcount reductions and decreases in management compensation, contributed to the operating margin increases for the quarter compared to both the first quarter of 2009 and the second quarter of 2008.

Results for the First Six Months of 2009

Net sales for the first six months of 2009 were $41.2 million, compared to $65.5 million for the same period in 2008. Net loss for the first six months of 2009 was $(1.1) million, or $(0.08) per diluted common share, including the $(0.05) per share after-tax, non-cash intangible asset impairment charge. This compares to a net income of $3.0 million, or $0.21 per diluted common share, for the first six months of 2008.

Liquidity Considerations

Net cash provided by operating activities for the first six months of 2009 was $5.8 million. As of June 30, 2009, net debt was $14.4 million, which was comprised of $21.2 million of line of credit borrowings net of $6.8 million of cash, cash equivalents and restricted cash. During the first six months of 2008, net cash provided from operating activities was $16.0 million. As of June 30, 2008, total net debt was $8.3 million, which was comprised of $11.8 million of debt net of $3.5 million of cash and cash equivalents.

The Company noted that it was in compliance with all of its financial maintenance covenants at the end of the second quarter of 2009, although it incurred an overadvance as of July 1, 2009 resulting from a step down in the borrowing base on that date. An overadvance results in an event of default under the senior credit agreement. On July 29, 2009, the Company entered into the Fifth Amendment to its Credit Agreement with Union Bank to, among other things, waive this covenant default, reduce the revolving loan commitment from $25 million to $20 million subject to the borrowing base limitation, and increase the customer concentration limitations for most accounts from 25% to 35% of gross sales, which increased the Company's borrowing base. The Company also noted that, since July 29, 2009, the date of the Fifth Amendment, it has continued to be overadvanced against its borrowing base.

Ms. Jackel continued, "Even though our total borrowings have been significantly reduced since the beginning of the year, we understand the need to refinance our existing senior credit facility, as well as potentially adjust our overall capital structure, to correct the current overadvance situation and facilitate investments for the long-term benefit of the Company and its shareholders. We have engaged FocalPoint Securities, LLC to assist us in this process. They have a long history with Physicians Formula, as they represented Pierre Fabre, a past owner, when the Company was sold to Summit Partners in 2003."

Corporate Strategy

Commenting on the Company's corporate strategy, Ms. Jackel stated, "In light of the current business environment, we have also given considerable thought to our long-term strategy as we continue to build the Physicians Formula brand and grow our share of the masstige market. We believe our key strategic assets are our leadership in complementary face make-up, our problem/solution approach, our strong consumer loyalty and our proven ability to deliver "class to mass" through innovative products.