Avon Q1 results slide, putting focus back on Coty bid

By Simon Pitman

- Last updated on GMT

Related tags: Revenue, North america, Vice president

Avon Products reported a big fall in its first quarter profits as sales for the period dropped again on the back of a shrinking direct sales workforce.

Sales revenues slipped 2 percent to $2.58bn for the period, representing a 1 percent fall in unit sales, a figure that was impacted further by increasing competition in the developing market of Brazil, together with lower sales growth in the Asia Pacific region.

As a result of the lower sales and higher costs net income fell by 82 percent to $26.5m, down from a figure of $143.6m for the corresponding period last year, although these figures did beat analysts’ expectations.

Rising costs impact profits significantly

The company said it was also impacted by costs from across the board, with costs as a percentage of revenue jumping 3.5 percent compared to this time last year.

On a reported basis, the company said that beauty sales were down 1 percent, with color sales flat, skin care and fragrance down 1 percent and personal care down 2 percent. However, this figure was impacted by currency translations, with overall beauty sales up 2 percent in constant dollars.

On a regional basis, constant sales in Latin America were up 1 percent to $1.14bn, while sales in North America declined 4 percent to $0.49bn and down 5 percent in Western Europe to $0.33bn.

Latin America impacted by currency and competition in Brazil

The company’s performance in the all-important Latin America market was particularly impacted by the results in Brazil, where sales actually grew by 2 percent, but this figure knocked back to a 4 percent fall in reported terms, impacted by currency.

The performance in Brazil was driven by a 6 percent increase in beauty sales in dollar terms, but this was partially off-set by lower average orders due to uncompetitive product pricing.

In Asia Pacific sales were down 2 percent to $0.22bn, a figure that was primarily impacted by lower sales representative numbers in China, which led to a double-digit slide in revenues there.

Putting on a brave face

Avon is now trying to strengthen the company’s position on the market through a major executive reshuffle that is expected to see a significant number of job losses, together with a significant cost restructuring program. The company is battling against a $10bn bid by smaller fragrance player Coty, which it says significantly undervalues the business.

“While our first-quarter operating performance remained challenged, we are making progress toward addressing some of our operational and cost-cutting opportunities,”​ said Kimberly Ross, Avon's executive vice president and chief Financial.  

“With Sheri McCoy now on board, we are confident that her broad leadership experience and skills in managing large, complex, global organizations will help drive Avon's future success. We look forward to communicating further with investors about our future growth strategy at the appropriate time."

Avon is hoping that the executive re-shuffle, which recently included the appointment of Sheri McCoy as CEO, will help to detract from the company’s financial challenges, an ongoing investigation into executive bribery in China and the unsolicited Coty bid.

Related topics: Business & Financial

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