U.S. Weighs on Avon; SEC Settlement Discussed

The direct seller reported that net income in the quarter decreased 48 percent to $31.9 million, or 7 cents a diluted share, compared with the year-ago period.

Sheri McCoy

NEW YORK — Avon Products Inc. made strides across certain markets in the second quarter, but continued to struggle in the U.S.

This story first appeared in the August 2, 2013 issue of WWD.  Subscribe Today.

The company also disclosed on Thursday that in June it made an offer to the U.S. Department of Justice and the Securities and Exchange Commission to settle the ongoing Foreign Corrupt Practices Act investigation, related to China and additional countries, for $12 million, among other terms. The offer was rejected, but the company said it expects a counterproposal.

Stifel analyst Mark Astrachan wrote in a research note Thursday, “This is positive given the relatively small size of the proposed settlement, relative to worst case fears a fine would be north of $100 million, and the seemingly nearer-term time frame to closure over a very long-running matter [which began in June 2008]. Overall, FCPA expenses declined $21 million year-over-year to $9 million.”

The direct seller reported that net income attributable to Avon in the quarter decreased 48 percent to $31.9 million, or 7 cents a diluted share, compared with $61.1 million, or 14 cents a share, in the year-ago period. The company’s total revenues for the three months ended June 30 declined 2 percent to $2.51 billion, compared with $2.56 billion in the year-ago quarter.

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In North America, total revenues declined 12 percent to $380.3 million in the quarter, due to a drop in active representatives and a 14 percent fall in beauty sales in the region.

“While I am pleased with our progress to date, I am not satisfied,” Sheri McCoy, Avon chief executive officer, told analysts during the company’s earnings call on Thursday.

“The U.S. business is a very important business for us and we’ve been working for probably 18 months now trying to stabilize it. I think it’s clear that we’re not getting the results that we desired,” said McCoy. “Part of the challenge is we need to make sure that we have a healthy field [of representatives] and that we are bringing new people into Avon from a representative standpoint, that they are engaged and that we have the right consumer proposition. That requires us to make sure we have the right price points and that we can invest in the business.”

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She noted that the company recruited former Tupperware executive Pablo Munoz as senior vice president and president of the North America division, who assumed the post in June. “While he is quickly immersing himself in Avon’s business, it will take some time to map out and execute the U.S. recovery plan,” said McCoy.

Results across Avon’s remaining regions were mixed. Total revenues in Latin America gained 1 percent to $1.25 billion, helped in part by Brazil and Mexico; in Europe, Middle East and Africa revenues increased 2 percent to $678.4 million, boosted by a strong performance in Russia, where Avon has implemented a “consistency program” that rewards representatives for consecutive orders each campaign, and in Asia-Pacific, revenues declined 9 percent to $198.1 million, dragged down by its business in China.

The company said it continued to experience weakness in beauty units in all regions, except in Europe, Middle East and Africa, and that it remains focused on driving a recovery in this area. For instance, in skin care, Avon is working to more clearly call out product benefits with its various collections.

McCoy told analysts during the call, “Looking back at the past three quarters, it’s clear that Avon is headed in the right direction. But please remember that there is a long road ahead of us.”