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NEW YORK — Avon Products Inc. has turned a corner.
The direct seller of beauty products ended the first year of its multiyear restructuring effort on solid ground, delivering a 9 percent increase in revenue in its fourth quarter.
“We feel very good about the progress we’ve made and the actions we’ll take in 2007 and beyond to continue to aggressively transform the cost base of this company,” chairman and chief executive officer Andrea Jung said during a conference call Tuesday. “We think the turnaround plan is the right one, and that we’re taking the right actions.”
A hefty increase in advertising spending fueled revenue growth of 9 percent in the quarter ended Dec. 31, to $2.62 billion from $2.4 billion in the year-ago period. Net income remained flat at $184.1 million, or 41 cents a diluted share, from $183.2 million, or 40 cents a share. Operating profit dipped 5 percent, to $282.4 million from $297.4 million, hampered by about $44 million in net costs tied to the restructuring program.
For the year, net income slid 44 percent, to $477.6 million, or $1.06 a diluted share, from $847.6 million, or $1.81 a share, on revenue that gained 8 percent, to $8.76 billion from $8.15 billion in the year-ago period.
Avon ramped up its advertising spending during the quarter by 95 percent, to $89 million, which fueled beauty sales by 11 percent. Highlights in the category included the Derek Jeter Driven fragrance, which contributed $10 million in sales during the quarter, according to Avon.
Last year, Avon increased its advertising spending by 83 percent over the prior year, to $249 million, outpacing original plans to increase levels by 50 percent.
Credit Suisse analyst Filippe Goossens noted, anecdotally, that during a recent visit to Argentina, he saw Avon ads at bus stops in markets outside Buenos Aires, indicating stepped-up efforts to expand the business. “Avon will have to keep advertising at the levels we’re seeing right now because it’s in a very competitive environment,” said Goossens, adding that innovation, execution of the restructuring program and accelerated ad spending would remain critical for Avon.
Throughout 2006, Avon announced a string of restructuring initiatives, including “delayering” top management ranks, reducing stockkeeping units through the Product Line Simplification program and streamlining the U.S. distribution network.
This story first appeared in the February 7, 2007 issue of WWD. Subscribe Today.
Jung said these actions resulted in slightly more than $100 million in benefits last year, the bulk of them associated with the delayering program that the company completed midyear.
For the year, restructuring costs totaled $229 million, compared with $56 million in 2005.
Avon continues to project the overall effort will cost approximately $500 million, but will produce annual savings of more than $300 million by 2009.
By region, North American fourth-quarter revenue gained 4 percent, to $749.9 million. Beauty growth of 2 percent was positive for the first time in eight quarters, and the number of active sales representatives rose 1 percent, the first increase in nine quarters.
Revenue in Latin America increased 13 percent, to $770.2 million, bolstered by Brazil, which ended 2006 with more than $1 billion in revenue, making it Avon’s second-largest market behind North America. Revenue in Western Europe, the Middle East and Africa increased 10 percent, to $355.9 million, and in central and Eastern Europe gained 17 percent, to $456.6 million, fueled by double-digit growth in fragrance and cosmetics. Asia Pacific revenue decreased 2 percent, to $222.8 million, dragged down by Japan’s 13 percent decline. Revenue in China surged 28 percent, to $67.2 million, as Avon continued to expand its direct-selling business there. At yearend, China had more than 350,000 licensed sales promoters registered with the government. In the quarter, unit sales increased 23 percent and China reduced its operating loss to $2.9 million from $7 million in the year-ago period. Avon relaunched its direct-selling effort in China in March and was followed by competitors Mary Kay and Nu Skin.
“Our position is, we have a really good start,” said Jung. “We have not seen any impact from new entries….It’s a cumbersome market and it takes a lot of time.”
The company said it would describe upcoming product innovations at an investor meeting scheduled for Feb. 15, but Jung noted that a major relaunch of color cosmetics was slated for the second quarter.
L’Artisan Parfumeur Unveils Skin Care
NEW YORK — Organic skin care is in for L’Artisan Parfumeur.
The Parisian fragrance marketer has entered the skin care category with Jatamansi, a three-item range named for the Himalayan nar plant, an extract of which is used as a key ingredient in the treatment line.
The Jatamansi line, which has been launched in France and the U.K., will be rolled out to the U.S. starting next month. There are also plans to launch an eau de toilette based on the collection in the summer. A 250-ml. Jatamansi eau de toilette spray will be priced at $140.
The skin care formulations have been certified as organic by France’s Eco Cert, an inspection and certification body that requires a minimum of 95 percent of ingredients to be obtained “by transformation processes that respect the environment.”
Also, at least 95 percent of plant ingredients found in the Jatamansi treatment items are said to be organically grown and they make up nearly 30 percent of the finished product — two more Eco Cert criteria — according to François Duquesne, president of L’Artisan Parfumeur U.S.
“We’re jumping into a totally different category,” Duquesne said of the skin care venture. “It’s a holistic approach,” he said of the line, which is positioned as an aromatherapeutic, moisturizing assortment focused on skin renewal.
“When you have a network of 30 stores worldwide, you have a critical mass that allows you to offer the customer a larger assortment,” Duquesne said. The Jatamansi trio includes a 200-ml. body cream, $125; a 250-ml. body oil, $95, and a 250-ml. body milk, $75. The nar plant, which grows at an altitude of about 10,000 feet, is prized for what are thought to be healing and relaxing properties. The Jatamansi products also employ extracts of rose and jojoba.
Sales of the line in the U.S. could range from $250,000 to $500,000 in the first year, according to industry sources.
Jatamansi will first reach L’Artisan’s five stores in the U.S., including four in New York, in March. Plans call for the skin care line to subsequently be rolled out to L’Artisan’s wholesale distribution network, which includes about 100 doors, such as Barneys New York, Bergdorf Goodman, Neiman Marcus and Fred Segal. Duquesne said he can envision eventually as many as six items, principally body care products, in the perfumer’s skin care range.
L’Artisan opened its fourth location in Manhattan on the Upper West Side. The 350-square-foot boutique, which opened at 222 Columbus Avenue and 70th Street just after Thanksgiving, is said to be exceeding its business plan of $500,000 in first-year sales.
Duquesne said he believes the New York City market could support five or six L’Artisan stores. In addition to the newest shop in the Upper West Side, there are locations in SoHo, inside Henri Bendel and on Madison Avenue at 82nd Street in New York, as well as inside Fred Segal in Santa Monica, Calif.
— Matthew W. Evans
Ruby & Millie: Cosmetics Cubed
LONDON — Ruby & Millie has gone vertical.
The British beauty brand — whose founders, Ruby Hammer and Millie Kendall, were appointed Members of the Order of the British Empire by Queen Elizabeth II — will introduce cubic cosmetics compacts in April.
Each compact features two layers of product and one compartment for brushes, all stacked on top of each other. Lip Spa Kit, for example, has three brushes packed in its bottom layer; three shades of lip gloss in its middle tray and three lip treatment items in the top compartment. The similarly organized Bronzing Kit includes a brush, two highlighters and a bronzer.
Prices have not yet been confirmed, but each kit is likely to retail for about 14 pounds, or $27.40 at current exchange.
— Brid Costello
LONDON — Skin care brand Rodial here will add Tummy Tuck, a product meant to help flatten the stomach area.
The lotion includes Rodial’s key ingredient — pomegranate ellagic tannins, said to firm, tone and repair skin, while increasing collagen production. In addition, peptides purportedly boost cell metabolism; fig extract breaks down fat cells and microfibers give a tightening effect. A 100-ml. pump bottle of Tummy Tuck will retail for 100 pounds, or $197 at current exchange. It will bow in the U.S. and U.K. at the end of April. Industry sources estimate it will generate 500,000 pounds, or $983,965, at retail from April through December.
A reformulated version of the brand’s Body Sculpture slimming and anticellulite gel will also bow in April. Maria Hatzistefanis, Rodial’s founder and managing director, said she hopes to increase the brand’s international presence. “We are ready to move to the next level,” she said, adding Rodial’s packaging has recently been tweaked. “We’re looking to European markets with a view to boosting business dramatically.”
Hatzistefanis added she plans to increase Rodial’s door count in the U.S. to 40 by the end of 2008, up from nine today.