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Avon's emerging markets focus pays dividends in Q1

By Guy Montague-Jones, 29-Apr-2008

Focusing on emerging markets has helped Avon continue on a high growth path in the first quarter despite declining US sales.

The direct selling firm reported a 14 percent increase in turnover for the three months ending March, 31 taking total sales to $2.5bn.

Profits outstrip sales

Operating profits outstripped this top line growth rising 25 percent on last year helped by reduced restructuring costs that the company hope will take operating margins from its current level of 11.8 percent to 14 percent for the full year.

Moving down the profit and loss account, net income tracked operating profit rising 23 percent to $184.7m.

Returning to the top line, currency fluctuations were responsible for much of the sales growth as local currency sales rose at the lower rate of 6 percent.

However, this organic figure was remarkably strong given the effect of the tough economic environment in the US on sales in the country.

Emerging markets focus softens US blow

Less than a quarter of Avon's sales are made in North America softening the impact of the 6 percent fall in sales on the continent.

"We continued to benefit from our strength in developing and emerging markets around the globe to more than offset the unfavorable impact of economic softness and service problems in North America," said Avon CEO Andrea Jung.

For instance, in Latin America where the company has a strong foothold, sales grew 32 percent to $864.3m.

Recruitment drive delivers results

As well as its emerging markets focus, Avon also benefited from its recruitment efforts, as growth in its active representatives accelerated to 14 percent.

Jung said this was one of the highest growth levels in many years.

Fragrance leads the way

In terms of business activity, fragrances came out at the top during the quarter with sales increasing 20 percent.

Personal care and color followed at 15 percent while skin care was at the bottom of the beauty pile at 13 percent.