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Avon Q4 sales steady, but losses deepen on restructuring

By Simon Pitman , 12-Feb-2013

Avon Products reported virtually stagnant sales during the fourth quarter, while losses deepen on restructuring charges, but the results beat expectations.

Revenue for the period fell by 1 percent to $3.0bn, a figure that showed an increase of 1 percent in constant dollars when including the impact of foreign currency translations.

As expected net profits took a big hit as the company continued to implement cost saving strategies that are expected to take effect during the course of the 2013 financial year.

Capping off a poor year for Avon

The results cap off a disappointing year for Avon, which has been plagued by a number of structural problems across its operations worldwide, together with a significant loss in the number of its direct sales representatives.

However, the trend of falling sales representative numbers was bucked for the final quarter of the year, with the overall number rising by 1 percent.

In December the company announced plans to reduce its permanent workforce by 1,500 people and to exit certain markets, specifically South Korea and Vietnam.

Loss widens on restructuring charges

As a result of the continued problems, the company posted a loss of $162.2m during the quarter, compared to a figure of $400,000 a year earlier.

The losses largely reflect allocated expenses for the quarter to implement the company’s massive restructuring program, which ultimately aims to cut a total of $400m related to administrative, sales and general costs.

Breaking the group revenue down for the current quarter, the company said that sales in key developing markets, specifically Russia and Brazil, had shown a marked signs of improvement.

Brazil and Russia prop up failing North American market

Counterbalancing a continued decline in the United States, sales in Brazil were 10 percent during the quarter, while Russia showed a 3 percent increase in revenues. The revenue increase in both of those markets was largely attributed to a jump in sales reps.

Conversely, sales dropped by approximately 12 percent in the North American market, which was directly impacted by a 13 percent drop in the number of sales reps.

The Asia Pacific region also recorded a dip in revenues of 3 percent, which the company said was largely attributable to shrinking sales in its biggest market there, China.

Costs already adding up for 2013

In addition to continued costs incurred for the restructuring, the company also said it expects other write-downs for the financial year that should amount to about $100m.

Those costs will be approximately $50m attributable to the Venezuela market, following an announcement last week that the government is to devalue the country’s currency by 32 percent, together with a further $50m relating to US dollar charges for non-cash charges such as inventory.