WWD.com/beauty-industry-news/financial/avons-fourth-quarter-net-up-159-2446496/
government-trade
government-trade

Avon’s Prices, Pitches Lift 4th-Qtr. Profits

Avon’s message of "We’re Hiring" helped to grow its base of active representatives by 11 percent and boost profits.

Avon Products Inc.’s message of “We’re Hiring” has struck a chord with consumers in the tough economy, helping to grow the direct seller’s base of active representatives by 11 percent and boost fourth-quarter profits by 15.9 percent.

During the quarter, Avon increased its advertising spending — which includes efforts to recruit sellers — by $9 million to $109 million compared with the prior-year period. The direct seller also invested an additional $24 million in sales leadership and incentives to improve the value proposition for representatives.

On Thursday, chairman and chief executive officer Andrea Jung reminded analysts that heading into 2009, Avon was three years into its turnaround strategy. At the start of the year, Jung said Avon updated its “playbook” to emphasize offering “smart value” and to bolster representative recruitment. She said Avon “focused on having one of the most intense recruiting efforts that we’ve had in our 123 years.” She later added, “We took very aggressive cost actions, but most importantly, we just stayed the course on the turnaround plan, which we felt had been working very well.”

Net income rose to $269.4 million in the quarter ended Dec. 31, or 62 cents a diluted share, from $232.4 million, or 54 cents, a year ago. Revenues for the quarter gained 13.3 percent to $3.18 billion from $2.81 billion. The quarter included restructuring costs of 6 cents a share.

Beauty sales gained 15 percent, or 9 percent in local currency, driven by double-digit gains in fragrance, cosmetics and personal care of 11 percent, 27 percent and 19 percent, respectively. Avon reported softness in the skin care segment. Beauty units gained 5 percent in the quarter, and overall units increased 4 percent.

Jung said unit growth has gained momentum across all price tiers, not only within the $5-and-below “smart value” bracket put in place to appeal to value-conscious consumers.

“There’s a new normal in consumer spending and even if the economy returns, we want to keep offering value products but achieve the pricing [increases], particularly in our innovative categories,” she said.

By region, Latin America continued to fuel the company’s growth, with revenues up 29 percent, and active representative growth of 10 percent. Latin America now represents about 40 percent of Avon’s sales. In a separate filing Thursday, Avon stated it anticipates one-time charges of $135 million related to currency devaluation in Venezuela.

Latin American helped to offset weakness in North America where, dragged down by softness in nonbeauty items, revenues fell 7 percent. Avon is working to move away from categories outside the beauty portfolio. Avon said the average order size in North America was down 12 percent in the quarter.

“The pressure of nonbeauty as we strategically reshape the mix will take some time” to work through, said Jung.

“We’ve got clear plans in place to drive the sustainable recovery and obviously average order and productivity growth,” she continued. “If we can get some tailwind in the economy, we would certainly like to see growth in the second half.”

For the year, net income declined 28.5 percent to $625.8 million from $875.3 million, with revenues decreasing 2.9 percent to $10.38 billion from $10.69 billion in fiscal 2008.

Jung said, “It was a very strong finish to a very good year.”