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New Avon CEO Calls Q1 Results ‘Unsatisfactory’

The business posted a $21 million loss for the quarter.

In an attempt to turn Avon Products Inc. around, newly appointed chief executive officer Jan Zijderveld is starting with the basics.

Zijderveld, who joined Avon from Unilever in February, outlined key learnings from his first months on the job for Wall Street analysts Thursday, after the company released financial results that he deemed “unsatisfactory.”

Zijderveld said Avon needs to step up its competitiveness, in terms of being more agile, more “glocal” (global and local) and in terms of digital engagement and social selling. The business also needs to get key markets, like Brazil, Mexico and Russia back to competitive growth and focus on representative satisfaction, which is tied into financial performance, he added, as well as “institute a rigorous performance culture” with more accountability for results.

“Our efforts are about balancing short-term critical fixes, plugging the leaks and making the right decisions for our business in the **long-term, making the boat go faster,” Zijderveld said. “My primary responsibility is getting Avon on the sure footing that will enable it to regain competitive market position.”

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Zijderveld stressed that Avon representatives should be the center of attention, and noted that some steps have already been taken to try to improve quality of service for them. The company is now calling 100 representatives per day to try to glean insights into their experience. After three weeks of making those calls, Avon learned that 12 percent of its product deliveries arrive to its representatives damaged, Zijderveld said — so Avon is working to improve. In the U.K., where heavy items are now being put at the bottom of packages, now 7 percent of deliveries are damaged.

“In Brazil, our largest market, we have assigned the global head of logistics to trial different types of delivery boxes,” Zijderveld said. “In our current pilots, we are seeing damage rates of approximately 3 percent.” In addition to working to fix logistics problems, Avon is stepping up education programs for its reps to try to help them grow their businesses.

Avon’s financial results for the first fiscal quarter were boosted by changes in its accounting practices that were implemented in January.

For its first fiscal quarter, the business posted a $21 million net loss. Avon’s revenue increased 5 percent to $1.4 billion — that figure includes a 6 percent lift from accounting shifts. The net loss was 6 cents a diluted share — an improvement from the net loss of 10 cents a diluted share in the year-ago period.

“The key to 2018 will simply be delivering on margin and cash flow goals, and clearly [the first quarter] wasn’t a good start,” wrote Barclays analyst Lauren Lieberman in a note.

Avon’s active representatives declined 4 percent, and ending representatives declined 1 percent, in the quarter. The dip was caused primarily by a decline in reps in Latin America, particularly in Brazil.

Europe, the Middle East and Africa posted a 12 percent increase in net sales, to $568.4 million; South Latin America was flat, with $497.1 million in net sales; North Latin America net sales were up 1 percent to $195.6 million, and Asia-Pacific sales were down 2 percent, to $111.4 million. Brazil — one of Avon’s key markets — experienced declines in beauty, as well as fashion and home, for the quarter.

“Despite an improving Brazilian economy, consumers remain very price-sensitive and value conscious in an increasingly competitive beauty market,” said Avon chief financial officer Jamie Wilson. “We’re seeing a continuation of strong direct selling activity and product innovation amongst our competitors.” Avon said it is taking steps to better communicate with reps in the region and to adjust the compensation model.

The company’s stock was down more than 11 percent in midday trading, to $2.21.