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Avon’s Initial Cost-Cutting Steps

In addition to a global head count reduction of 1,500 jobs, it will exit the South Korea and Vietnam markets.

NEW YORK — A repeat of the tag line “Ding Dong Avon Calling” from a classic commercial won’t be occurring in South Korea and Vietnam anytime soon.

This story first appeared in the December 13, 2012 issue of WWD.  Subscribe Today.

Those are the two Asian markets that Avon Products Inc. has decided to exit in connection with its annual cost-savings target of $400 million by the end of 2015, which the company first disclosed last month.

These initial steps in the cost-cutting initiative, which also includes a global head-count reduction of 1,500 jobs, will account for “20 percent” of the total targeted savings.

“In order to turn around the business, we are focused on driving top-line growth and aggressively managing our cost base,” said Sheri McCoy, Avon’s chief executive officer. “The decisions outlined today are necessary to stabilize the company and begin the process of returning Avon to sustainable growth.”

McCoy, who took over the ceo post in April, disclosed the cost-savings target when the company reported third-quarter earnings last month.

The initial cost-cutting initiatives are expected to be completed before the end of 2013, the company said.

In a regulatory filing with the Securities and Exchange Commission, Avon said that its board on Monday approved initiatives connected with a global head-count reduction and the closure and rationalization of certain facilities. Those initiatives include the decision to leave the South Korea and Vietnam markets.

Avon said it expects to record total charges of $80 million to $90 million before taxes, with between $50 million to $60 million of the charges to be recorded in the fourth quarter of 2012. The balance is expected to be recorded in the first half of 2013.

The company in the third quarter posted an 80.7 percent slide in net income attributable to Avon to $31.6 million, or 7 cents a diluted share, on a total revenue decline of 7.7 percent to $2.55 billion.

While McCoy faces what many believe is an uphill battle, she didn’t seem fazed by the daunting challenge.

McCoy promised to tackle the firm’s challenges with a slow-and-steady approach. “We know what the problems are and they are solvable,” she told analysts at the time during a conference call to Wall Street analysts.

The latest steps on the Avon front appear to be the first of what will be a series of changes ahead for the beauty firm.

The company said it “expected to communicate additional steps toward the cost-savings goal as it progresses.”

Shares of Avon fell 1 percent to close at $14.33 in trading Wednesday on the New York Stock Exchange.