NEW YORK — Avon Products Inc. touched up its fourth-quarter expectations, boosting its profit guidance by a penny a share.
This story first appeared in the December 11, 2002 issue of WWD. Subscribe Today.
The firm’s BeComing retail brand, though, is slated to go under the microscope after Christmas, raising the specter that Avon might reduce its investment in the venture.
For the fourth quarter, the direct beauty merchant, based here, expects to produce profits of 79 cents a share, bringing its own estimates in line with Wall Street’s expectations. Previously, the firm was looking for earnings of 78 cents a share. The year-ago quarter saw earnings of 46 cents a share, or 74 cents before unusual items.
Investors were pleased enough with the projections to trade its shares up $2.50, or 4.8 percent, to close at $54.75 on the New York Stock Exchange.
Should the firm decide to redirect the funds currently being directed to BeComing, chairman and chief executive Andrea Jung said she has plenty of other areas where additional investment could be advantageous.
“I have an agreement with J.C. Penney to really look at [BeComing] after the Christmas season,” said Jung on a conference call Tuesday. A full analysis will be undertaken at the end of this month or the beginning of January, she noted.
“The current assumptions for the 2003 plan are for a similar level of investment [in the brand], not more, and we would probably have more to say about that at the beginning of the year,” she said. This fiscal year, Avon spent about 5 cents a share on the business, or approximately $12.3 million based on 245.8 million shares outstanding.
“Should our level of investment change, there are many options to redeploy those funds elsewhere,” Jung said. Among the options cited were introducing globally the teen initiative slated to roll out in the U.S. next year during the second half, as well as an expansion of the firm’s leadership program, which has been successful domestically.
BeComing, which was born into the soft 2001 fourth-quarter retail environment, got off to a rocky start. Just before launch, retail partner Sears, Roebuck & Co. withdrew from participation as it undertook a shift in corporate focus that would eliminate its cosmetics departments. BeComing is sold in 92 J.C. Penney stores, at the Avon Centre Salon and Spa in the Trump Tower and via its Web site, ibecome.com.
An Avon spokesman declined to elaborate on Jung’s comments, but noted that the BeComing business has exceeded the sales plan jointly set by Avon and J.C. Penney.
A J.C. Penney spokeswoman said the brand was growing steadily. “As we do with all of our new product launches we are going to continue to monitor the performance and ensure we are delivering the right product and service to our customer.”
Standard & Poor’s fixed income analyst Lori Harris noted BeComing “is not at all a big part of their business.”
“When BeComing was first introduced, we were definitely very interested in it and it seemed like another avenue of growth,” she said. “I don’t think it’s as big as what they would have liked it to be. We’re interested in seeing how the BeComing brand does in a stronger economy and retail environment, which is expected in 2003.”
For the fourth quarter, the firm’s overall sales are slated to rise 4 to 5 percent, or 12 to 13 percent without the impact of foreign currency exchange. Unit volume is projected to rise 14 percent, while active representatives are expected to grow by 10 percent.
Jung said Avon’s U.S. operations were delivering a “standout performance in the fourth quarter.” Operating profits for the region should be up about 12 percent with sales growth in the 5 to 6 percent range. Beauty sales are slotted to climb twice as fast, about 12 percent.
“It’s shaping up as really one of the strongest years ever in this largest market,” Jung noted.
Europe is growing, with operating profits set to be up over 30 percent during the quarter on a 25 percent jump in sales. “Asia is on track to deliver a nearly 20 percent profit increase, and Latin America, while strong in local currency terms, continues to be significantly affected by currency translation,” the ceo added in a statement.
For the full year, Avon is looking for earnings per share of $2.31, before unusual items.
In 2003, the firm is targeting earnings of $2.54 a share with local currency sales growth of more than 10 percent. Each quarter of the year is also expected to benefit from year-over-year expansion in gross and operating margins, as benefits from the firm’s business transformation initiatives accelerate.
On the call, Jung asserted, “The best is truly yet to come for this company.”