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BUSINESS Bullish on Beauty

You may not believe in makeup. But you’ve got to believe in Jinger Heath.
By Shad Rowe |

JlNGER HEATH, WHO CHAIRS THE board of Dallas-based Beauti-Control Cosmetics Inc., has sex appeal and money, two much-sought-after commodities. Her story is instantly fascinating because it combines two of the world’s great mysteries-women and the stock market.

A couple of personal notes are in order. First, a disclosure: 1 own stock in Heath’s company. I would have owned more (and made more money) if I had not totally underestimated her significance to the enterprise. Second confession: I’m not much of a believer in the power of makeup. Intellectually, I know that there is a direct correlation between the use of cosmetics and how women look: they look different in the morning. But my abiding superstition is that how they look is solely a function of mood.

Obviously, many women disagree. In the last eight years Jinger Heath, thirty-six, and her husband Dick, forty-seven, have gotten rich off cosmetics-not Ross Perot rich, but remarkably rich given the economic devastation visited upon our city during those years. The Heaths own 40 percent of BeautiControl stock worth $37 million. In two public offerings and in open-market transactions, they have sold BeautiControl stock worth more than $25 million. The company pays each of them $300,000 a year, plus a bonus based on pre-tax earnings. Their BeautiControl dividend income is $400,000 a year, and property they rent to the company produces $70,000 per year. Assuming that the Heaths reinvest the proceeds of their stock sales wisely, they ought to have a nine-digit net worth. They occupy an opulent, newly constructed mansion on Park Lane, fly their own plane, and live, as Jinger puts it, a “Dynasty” lifestyle. Blake and Krystal, please copy. The evolving dynamics that have created this financial success are the subject of this discussion.

In 1981, Dick Heath was looking for something to do. He had some experience in direct sales with Tupperware. He and Jinger had been married nine years (she was nineteen when they married) and had two children from their marriage and two from his previous marriage. Like a lot of people, they had a desire to own their own business. With $60,000 in cash and a note for $550,000, they acquired the assets of a struggling direct sales cosmetics company that they christened Jinger Lee Inc. If imitation is the sincerest form of flattery, no doubt Mary Kay Ash was blushing.

During its first year under their operation, the company lost $65,000 on sales just under $1 million. In 1982 and 1983 sales picked up nicety but losses increased. Finally, in 1984, the company turned the corner, posting earnings of a little less than $1 million on sales of about $8 million. In 1985 the company took in a few outside investors, all well-known Dallasites. Former Mayors Bob Folsom and Starke Taylor bought stock at an adjusted cost of $1.65 per share, BUSINESS as did real estate operator Hank Dickerson.

In March of 1986 the company went public. At an adjusted price of $10.55 per share, the stock seemed absurdly overvalued to me-at thirty times trailing earnings and three times sales. At the time of the offering the Heaths were each being paid salaries of $150,000 plus bonuses. In June of the same year, selling shareholders registered and sold additional shares at the even higher adjusted price of $15.20. BeautiControl was perceived as an exciting growth stock and was priced by the market accordingly. Shortly after insiders cashed in a few of their chips, however, BeautiControl stopped growing.

The stock declined from a high of about $18 to $3 after the crash of October 1987.I became interested in the stock in the early summer of 1987 and made an appointment with Dick Heath, whom I (chauvinistically) assumed was the key person. Dick Heath seemed genuinely distressed that the company’s performance had so greatly disappointed investors. He had some confidence that the company was getting ready to resume its growth and said that he felt obligated to make up for the disappointments Wall Street experienced. On one of his office walls was a collection of portraits of what I took to be ten or twelve very different looking women. On closer look, 1 saw that all were of Jinger Heath, featuring different makeup and hairstyles. I asked if I could meet her, but she wasn’t on the premises. My bad luck. Still, 1 left the meeting feeling mildly bullish. It was not as though the company had to do something complicated like find a cure for AIDS. All they had to do was motivate women to sell other women paint.

Apologies for being somewhat simplistic. BeautiControl’s marketing centers around two- or three-hour clinics where women led by a company consultant experiment with different makeup to determine their color type. It is called color analysis, Jinger, as an example, is a “winter” person and selects her makeup accordingly.

From my meeting with Dick Heath I returned home with a large sack of Beauti-Control cosmetics that I presented to my wife, who would be categorized as a natural beauty. When I explained that we needed to find out if she was a winter, summer, spring, or autumn person, my wife shook her head as if I had lost my mind, took the sack, and walked out of the room. I was afraid to bring the subject up again. I had not yet caught the BUSINESS fever. But then, I had not met .linger Heath.

A successful investor I know describes his investment philosophy as “Bet on the jockey, and buy on the dips.” I bought Beauti-Control on a dip and made a small bet on Dick Heath, who, as chief executive officer, always presided at annual meetings and before security analysts. But as time went by, I kept hearing from other investors that if I hadn’t seen Jinger Heath in action I was missing the whole point of the company. “Jinger Heath turns those saleswomen on…” “She is like some sort of fantastic evangelist…” I made an appointment to meet with Jinger. Since she was going to be downtown anyway for a Crystal Charity Ball luncheon, she agreed to stop by my office. She appeared wearing a short, pink, big-shouldered suit, white stockings, and some sort of turban. She is small, in good shape, and radiates an intensity typical of high-energy people. Rather than taking on the expected bearing of the successful female executive, she sounded much like the West Texas cheerleader she once was.

“I look at my life as a circle,” she began. “My faith, my family, my career, and my relationships are all related. Not a list, but a circle.. .What I want is balance.. .What we are selling is hope… Every woman deep down still wants to look good, to be told she is beautiful.. .When we talk to women we find that what they want most in their lives is control.. .We have secretaries who used to work long hours and make $15,000 a year who are now [sales] directors for Beauti-Control and make $150,000 a year and have more time for their families and friends… When people comment on a man, they talk about his accomplishments. When they comment on a woman, they talk about how she looks.. .Our people relate to me because they see me as a real person, not just somebody who lives a ’Dynasty’ lifestyle. I have problems, too, with children, with family, things that all of us experience…”

I relate to her, too, and I would buy more stock except that at twenty times earnings (as of early October), it once again seems a little rich. BeautiControl is growing again, fast. The company now has 19,000 consultants (sales reps), mostly in the South. But the opportunity both here and abroad is enormous. With annual sales of $3 billion, Avon is still the biggest direct sales cosmetics company in the world, but its profit performance is erratic. Second is Dallas-based Mary Kay with sales of about $300 million. And third is BeautiControl with annual sales of about $44 million. The company is moving into Canada and is sticking its toe into Far Eastern waters.

Jinger Heath has a lot of dynamic years ahead of her. There are a couple of billion women out there, a little down at the mouth, feeling a little plain, yet knowing that somewhere within them is Cinderella. Luckily for all of them there is a fairy god queen in North Dallas named Jinger.

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