NEW YORK -- It may leave men's faces silky smooth, but Gillette's new razor has hit some rough patches on Wall Street.
At a glitzy unveiling last week in the Rainbow Room at Rockefeller Center, Gillette Co. announced the arrival of its new SensorExcel. The company said the high-tech razor would help them improve their already strong market share and keep a step ahead of the competition.
But stock analysts have questioned the need for the new razor. Although they think Gillette's stock price and market share are headed up, many doubt that the SensorExcel will contribute much to this movement.
Sally Schaadt of Fourteen Research, a brokerage house in New York, said Gillette was "looking to gain another point" in market share but most likely would end up eating into the sales of its other razors. The new razor, she said, is "cannibalizing their own products".
Questioning the company's need for a new product, Terry Bivens of Argus Research said SensorExcel would increase Gillette's market share marginally. The company already makes 52 percent of all razors sold in North America and Europe.
Not all analysts, however, are pessimistic about Gillette's new announcement. Eileen Gormley of Pershing and Co. said the new product "will enable the Sensor brand to increase in sale overall and take shares away from generic and discount brands."
Many analysts believe Gillette's stock is undervalued, partly on fears that generic products will steal away market share. But those worries are easing and the stock price is due to go up on its own, they said.
In fact, the stock has been increasing slowly after falling because of an April 2 scare, when Philip Morris Cos. announced that it will lower the price of its cigarettes to compete better with its generic competitors. Gillette's stock fell to a yearly low of $49 but has since edged up to the $55 range. The company closed Friday at $55.375 a share, up 75 cents.
Ms. Schaadt, who recommends buying Gillette stock until it reaches $65 a share, said the Boston-based company stood to gain from investors' faith in brand-name products.
"The stock will go up substantially over time, but there are drags on earnings now" that the new razor will not help ease, Mr. Bivens said. Some of those drags comes from the challenge of generic products and the growth of electric razors.
Analysts fear the company's new razor might even be contributing to that drag.
In addition to launching a $100 million advertising campaign in Europe and North America with top ad shop BBDO Worldwide Inc. to promote the SensorExcel, the company has also plowed "all research activity for the past four years" into the product, said Gillette Executive Vice President Robert J. Murray.
What four years of intensive research has produced is a product loaded with seemingly everything except bells and whistles. The razor handle has an "elastomeric" grip and an "active surface of raised fins on elastinon" acts to stretch the skin for a closer shave and "create a pleasant sensation," said John Darman, Gillette's director of new products.
Gillette officials said they introduced the new razor now because they wanted to stay ahead of the competition, which includes Wilkinson, Schick and Bic, each with market shares of less than 10 percent.
The old Sensor, raking in anywhere between 30 and 35 percent of the company's total profits, has become more and more profitable each quarter because of reduced start-up and marketing costs.
Gillette earned $141.1 million, or 64 cents a share, in the most recent quarter. Analysts expect it to earn $2.70 a share this year compared with $2.32 a share last year.
Since its introduction in 1989, the old Sensor has grossed $1.2 billion in sales and is projected to gross another $600 million this year. During the four years that Sensor was on the market, Gillette's sales totaled $18 billion.
Gillette officials expect SensorExcel to surpass the old Sensor's sales, but said the new razor would not eat into the old razor's market share because it would be marketed as a premium razor and sell for 15 to 20 percent more than the regular Sensor. The average price is expected to be slightly more than $4.
The new razor will make its debut this September in Europe. It is scheduled to be introduced in Canada later this year and in the United States sometime in 1994.