Natura reports strong second quarter but declining market share

27-Jul-2008 - Last updated on 30-Jul-2008 at 16:14 GMT

Natura has reported strong domestic sales however its share in one of the world's fastest growing markets has dropped.

The Brazil-based company reported second quarter domestic sales of R$1.14bn, an increase of 9.1 per cent on last year's results.

Although Natura's advertising and marketing expenditure for the quarter increased significantly in comparison to the previous year, this was largely offset by the increase in sales revenues and productivity.

The company refers to productivity gains of R$39m resulting from reduced manufacturing costs and increased internet sales, which helped net income leap by 21.5 percent to reach R$176.4m.

Drop in market share

Despite these results, the company's share of the Brazilian cosmetics market dropped slightly from 22.8 to 22 percent.

The reduction was felt particularly in the cosmetics and fragrance market where a loss of 3.8 percentage points was recorded.

However, Natura's share in the personal hygiene market increased slightly from 11.0 to 11.7 per cent.

These results echo recent findings from market research provider Kline, which suggest that although Brazil is one of the fastest growing markets, it is the international giants who are driving growth.

The success of companies such as Avon which as a direct seller uses similar marketing channels to Natura, may be affecting the domestic company's results, suggested Danilo De Paula from Kline's Sao Paulo affiliate Factor de Salucao.

In addition, De Paula noted that in the sectors tipped for growth in the region - skin care and color cosmetics - innovation is key, therefore the international companies with higher R&D budgets are likely to lead future growth.

Growth of international sales

Looking at the company's performance outside of Brazil shows increasing sales revenues but bottom line losses due to significant investments into the markets.

In Argentina, Chile and Peru, where the company is consolidating its operations sales revenues increased by 28.2 per cent to R$49.5m however a 30 percent increase in cost of sales resulted in a R$1.4m loss.

In Mexico, Venezuela and Colombia where the company is beginning its operations, sales revenues stood at R$11.7m but a bottom line loss of R$8.2m was recorded.

The French and North American markets also posted EBITDA losses of R$8.7m in 2008 in comparison to R$2.6m in the same quarter last year.