Avon Posts 23.1% Profit Gain

Avon Products Inc. experienced a strong first-quarter performance in Latin America, which offset a sales decline in North America ...

Avon Products Inc. experienced a strong first-quarter performance in Latin America, which offset a sales decline in North America — and propelled double-digit gains in overall sales and profits, the direct selling giant reported Tuesday.

Profits were up 23.1 percent during the quarter ended March 31 to $184.7 million, from $150 million in the year-ago period, on total revenues that rose 14.2 percent to $2.5 billion from $2.19 billion a year ago.

Earnings per diluted share were 43 cents, up 26 percent, from 34 cents a share a year ago, just short of Wall Street analysts’ expectations of 44 cents for the current quarter.

Sales in Latin America, the firm’s biggest global market, jumped 32 percent to $864.3 million. In North America, however, sales were down by 6 percent to $593.6 million. In China — a smaller market overall for Avon — there was also considerable growth of 29 percent in the quarter, to $87.8 million.

“We’re off to a good start to the year,” Andrea Jung, chairman and chief executive officer of Avon, told analysts during a conference call Tuesday morning. “Beauty growth is on track.”

Sales of beauty products, including cosmetics, fragrances, skin care items and toiletries, were up by 17 percent to $1.78 billion. Individually, fragrance sales were up 20 percent, thanks to celebrity and designer lines, according to Jung. And color cosmetics were up by 15 percent — as was personal care — while skin care sales increased by 13 percent.

The firm’s Beauty Plus and Beyond Beauty businesses, which include jewelry, watches, apparel, accessories, home products and gift and decorative items, generated some $698.1 million in quarterly revenues.

Jung said she believes Avon is well balanced geographically and is confident that the firm’s multiyear restructuring strategy can yield margins of about 14 percent, a level last seen in 2005.

Avon expects annualized savings of about $430 million once its restructuring strategy, a plan started in 2005 and expected to run through 2011 or 2012, is fully implemented — and savings are projected to reach $270 million this year, on $469 million in plan costs recorded through the first quarter.

First-quarter operating profit came in at $296 million, a 24.4 percent rise from $238 million in the prior year. Operating margin was 11.8 percent compared with 10.9 percent in the prior-year quarter. First-quarter operating profits included costs associated with the company’s restructuring program of $26 million, the firm noted.

This story first appeared in the April 30, 2008 issue of WWD.  Subscribe Today.

“I believe our successful [first quarter] performance [was] the result of our combined strength against each of these four dimensions: geographic leverage, active representative growth, beauty gains and margin improvement,” Jung told analysts, noting that overall active representative growth came in at 14 percent. Jung also pointed to “exceptional” sales in Brazil, where revenues leapt by 60 percent.

In Central and Eastern Europe, sales were up by 17 percent to $421.6 million; in Western Europe, the Middle East and Africa, sales also rose by 17 percent to $317 million, and in Asia-Pacific, sales were up 9 percent to $217.4 million.

In North America, however, where sales slid, Jung pointed to one bright spot — a 2 percent increase in active representatives. Also, investment in its representative program “helped to mitigate the impact of a 30 percent year-over-year rise in gas prices,” said Jung.

“Even during this challenging cycle in North America we continue to strategically invest in this business so that we are well positioned with the macroenvironment shift. We sustained advertising investment in the brand during this quarter and also continue to invest in a full range of [representative] initiatives.”

The firm’s quarterly advertising expenditure came in at $82 million, a 14 percent increase from the same period a year ago.

“Looking ahead to the second quarter, we expect the degree of decline in overall revenues for [North America] will be less than in the first quarter,” Jung added. “Most importantly, we believe that the strong momentum we’re seeing in developing and emerging markets will continue to more than offset weakness in North America and drive another year of sustainable growth on the top line for the total company.”

— Matthew W. Evans

Inter Parfums, Gap Expand Deal

Inter Parfums Inc. has expanded its relationship with Gap Inc. beyond North America. The two firms have signed a four-year licensing agreement for international distribution of personal care products in Gap and Banana Republic stores, and specialty and department stores outside the U.S., including duty free stores.

Jean Madar, chairman and chief executive officer of Inter Parfums, stated, “We agree with our business partners at Gap Inc. that expanding the distribution of Gap and Banana Republic personal care products beyond North America and outside Gap and Banana Republic stores makes good business sense. We test marketed certain products at select European retailers and the results to date have been extremely encouraging.”

Inter Parfums has developed an assortment of fragrance, home fragrance, bath and body, and grooming products under both the Gap and Banana Republics license.