Avon sells its jewelry business back to original owner at big loss

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Avon sells its jewelry business back to original owner at big loss
Avon Products continues its restructuring and streamlining with the sale of its jewelry unit back to its original owner Rhinestone Holdings, a deal that means a big loss for the cosmetics giant.

The Silpada Jewelry unit was sold back to Rhinestone for just $85 million, having been bought from Rhinestone Holdings back in July 2010 for around $650 million.

Rhinestone is a new company which has been formed by the founders of the Silpada Jewelry business with the specific objective of buying back the business from Avon Products.

The acquisition also includes a number of clauses, including an earn-out payment of up to $15 million if the business achieves certain profit targets during the course of the next two years.

In a statement, Avon said that it expects to take an estimated charge of $80 million pretax, noncash in estimated losses attributed to the sale.

An end to broadening the business portfolio

At the time the acquisition was seen as a means for the company to broaden its focus away from cosmetics, into other value-added areas that would help give the business a broader portfolio and less reliance on the cosmetics area.

However, the company has struggled to maintain the momentum of the jewelry business as it also fought to stem a drop in both sales and profits during the last two years that has forced the company’s executives to make some significant changes to the business structure.

At the time of the acquisition, the Silpada Jewelry business had an estimated turnover of $230 million, but under Avon management the annual turnover fell to around $155 million last year.

First quarter provided first positive results

For the first quarter of 2013, the company reported that net sales fell by 4 percent to $2.5bn, a figure that was flat in constant dollars, when taking into account the positive impact of currency translations and one that points to an uptick in a long succession of poor results.

This figure reflected a 5 percent dip in reported beauty sales, while personal care, color and skin care fell by 3 percent, 6 percent and 12 percent respectively, while fragrance bucked the downward trend with sales growing 1 percent on a reported basis.

But despite the fact that the sales figures still remain flat overall, the company’s restructuring program is showing signs of improving the business dynamics as net profits have risen for the past two quarters on the back of cost savings.

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