Avon Products Inc. is in stabilization mode.
“The entire organization is working with a sense of urgency,” the firm’s chief executive officer Sheri McCoy told analysts during the company’s first-quarter earnings call on Tuesday. She later added, “We’re seeing some progress with pockets of the business showing early signs of stabilization. While we anticipate that there will be some bumps along the way, we’re confident that the company is on the right track.”
The firm is beginning to deliver early signs of progress, reporting a first-quarter net loss attributable to Avon of $13.7 million, or 3 cents a diluted share, compared with net income of $26.5 million, or 6 cents a share for the year ago period. Excluding certain items — including a charge related to the devaluation in Venezuelan currency — adjusted net income was $112 million, or 26 cents a share. These figures beat Wall Street analysts’ consensus estimate of 14 cents a share. The news sent Avon shares to a 52-week high of $24.30 on Tuesday morning. Shares closed at $23.17, up 4.18 percent, on Tuesday.
McCoy, who took the helm at Avon one year ago, said the company’s focus is on stabilizing its four regions, particularly North America and Asia-Pacific, where revenues have declined in the quarter. Revenue in North America slid 15 percent to $406.2 million, as the number of active representatives in the region declined by double digits. “Today, frankly, the U.S. is a drain on the overall business,” said McCoy. “What success looks like for us is to stem the decline and really get it to a position where we’re strengthening the profitability.”
Revenue in Asia-Pacific declined 10 percent to $200 million, driven in part by a 31 percent drop in revenue in constant dollars in China where Avon is transitioning from direct selling to a retail model. In Latin America, revenue was flat at $1.14 billion, with Brazil up 11 percent in constant currency, and in Europe, Middle East and Africa revenue ticked up 1 percent to $733.1 million. McCoy noted that markets such as Poland and Russia have fully transitioned to an online ordering model over the last 18 months. She added that while Avon is encouraged by these changes, they are more difficult to implement in the U.S., due to an older IT infrastructure.
Avon’s net revenue in the quarter declined 3.9 percent to $2.48 billion, compared with $2.58 billion in the year-ago quarter, but was flat in constant dollars. Total units declined 3 percent. The number of active representatives gained 1 percent.
Total beauty sales declined 5 percent, or 1 percent in constant dollars. By category, in constant dollars, fragrance gained 6 percent, while personal care was flat, and color and skin care were down 2 percent and 9 percent, respectively. McCoy said she was most disappointed by the slide in Avon’s skin-care business. She called out the launch of Anew Clinical Pro Line Corrector Treatment with A-F33 in the U.K. as a bright spot, but said the company needs to better define the positioning of its midtier skin-care range.
When asked by one analyst if a direct-selling company like Avon needs to advertise given it has legions of representatives toting product brochures, McCoy said, “It depends on what market we’re in and where we land with the household penetration. If we have heavy household penetration in some markets, what we see is that advertising does, in fact, help grow our brand.” She pointed out that Avon spent less on advertising in the quarter than it did in the year-ago period. “In some areas where we’ve walked away from advertising we’ve seen a negative impact on our brand..…We also have to get smart about how we use media. Digital advertising, for example, is much less expensive than TV. So we’ll continue to look at the right media mix.”