Avon Products Inc. may soon be able to put litigation related to the ongoing probe into bribery allegations in China and other countries behind it. But the challenges for the direct seller continue to build, particularly as it loses ground in its home market of North America, where sales slid 21 percent in the fourth quarter.
This story first appeared in the February 14, 2014 issue of WWD. Subscribe Today.
On Thursday, Avon said it may be getting closer to reaching a settlement with the U.S. Department of Justice and the Securities and Exchange Commission related to the Foreign Corrupt Practices Act investigation. Avon chief executive officer Sheri McCoy told Wall Street analysts during the company’s fourth-quarter earnings call that while talks continue and a settlement is not guaranteed, the company is forecasting that a reasonable settlement with both agencies would be in the range of $89 million to $132 million.
“Our discussions with the government are ongoing and differences remain. But the team is working hard in an effort to bring these matters to a close,” said McCoy.
Morgan Stanley analyst Dara Mohsenian wrote in a research note Thursday that the forecasted range is less than market expectations, which were in the $200 million range.
A potential settlement would be one less distraction for McCoy, but the company continues to struggle to gain traction with its turnaround plan. Despite its challenges in the quarter, McCoy reiterated that the company expects to make progress toward its previously stated goal of achieving midsingle-digit revenue growth by 2016. During the call, Kimberly Ross, Avon’s executive vice president and chief financial officer, told analysts that the company does not expect to see sales growth until the second half of 2014.
The company weathered a tough fourth quarter and fiscal 2013. The firm reported a fourth-quarter net loss attributable to Avon of $69.1 million, or 16 cents a diluted share, compared with a net loss of $162.2 million, or 37 cents a share, in the year-ago period. The firm’s total revenue declined 10 percent to $2.7 billion, or 4 percent in constant dollars. Total units declined 10 percent. Its number of active representatives decreased 5 percent.
Beauty sales slid 11 percent to $1.89 billion, or 4 percent in constant currency.
In North America, total revenues slid 21 percent to $370.8 million.
“Reversing this decline and taking that drag off of our overall performance is at the top of my agenda,” said McCoy. “I can assure you that it’s not business as usual, and that we’re taking the necessary actions to get this business back on solid footing.”
She added that Pablo Muñoz, Avon’s senior vice president and president of North America, will detail the company’s plans for stabilizing the market Thursday at the Consumer Analyst Group of New York conference held in Boca Raton, Fla.
“The most important thing for us is getting our top 10 markets right,” said McCoy, noting that in aggregate these markets account for 80 of company sales.
In the remaining regions, revenues in Europe, Middle East and Africa decreased 4 percent to $867.7 million; in Latin America, revenues declined 7 percent to $1.24 billion, and in Asia Pacific, revenues slid 22 percent to $192.4 million.
“We went into the year with a solid first half and then experienced a decline in the second half, driven by both execution and macroeconomic factors,” said McCoy. “We had modest improvement in our financial performance; we did well on operating margin and cash. However, we need to do a better job at driving top-line growth.”
For the year, the net loss attributable to Avon was $56.4 million, or 13 cents a diluted share, compared with a loss of $42.5 million, or 10 cents a share, in the prior year.
Total revenue was $10 billion, down 6 percent from the prior year, or 1 percent in constant currency. Total units declined 5 percent. The number of active representatives dipped 2 percent.
Beauty sales for the year declined 7 percent to $7.1 billion, or 2 percent in constant currency.
McCoy recalled that during the year, Avon tackled tough issues, such as divesting the Silpada jewelry business, refinancing its debt, exiting underperforming markets — including South Korea, Vietnam and Ireland — and advancing settlement talks with the DOJ and SEC.
“None of these issues are easy and each of them required attention from management,” she said. “But we are working to put them behind us now, leaving Avon in better shape to move into the future.”
Since taking the helm at Avon in April 2012, McCoy had made a number of changes to the management team. She noted that about half of the executives holding vice president positions are either new to their posts or to the company since her arrival.