Hit hard by currency fluctuations, Avon Products Inc. posted deeper losses on sharply lower sales for the first quarter, following the sale of Avon North America to Cerberus Capital Management, which closed on March 1.
The business posted a net loss of $165.9 million, compared with $147.3 million in the prior-year period, a 13 percent increase. Adjusted diluted earnings per share from continuing operations declined 10 cents a share year-over-year, to a loss of 7 cents.
Net sales for the quarter were $1.28 billion, down 16 percent from $1.53 billion in the year-ago period. Revenue increased 2 percent in constant dollars, and 3 percent in constant dollars excluding the impact of the sale of Liz Earle, which Avon divested in July.
Avon said its loss from discontinued operations, which includes the North America business, was $9.6 million. The company is in the middle of a restructuring plan that aims to provide $350 million in savings over a three-year period, and includes 1,700 job cuts. That figure includes 800 open positions. As part of the plan, Avon is also moving its headquarters to the U.K.
“We’ve made meaningful progress against our transformation plan,” said chief executive officer Sheri McCoy on the company’s earnings call. “We’ve already achieved a number of key milestones that we set for ourselves in 2016.”
“Since sharing the plan with the investment community in January, we have successfully completed the sale and separation of the North America business, implemented a new organizational structure, identified actions to deliver our 2016 savings targets, and reconstituted our board of directors,” McCoy said in a statement. “With these actions, we are well-positioned as we move forward aggressively to drive out cost, invest in growth and improve our financial flexibility.”
By category, skincare decreased 22 percent (6 percent at constant currency) to $367 million in sales, versus $468 million in the year-ago period. Fragrance was down 14 percent in constant currency, to $336.5 million from $393.2 million, but up 4 percent in constant currency. Color cosmetics were down 15 percent to $247.9 million from $292.7 million, but rose 3 percent in constant currency. Together, Avon’s fashion and home units brought in $328.6 million for the quarter.
In color cosmetics, McCoy called out Avon’s new matte lipstick as a success story. “Our Perfectly Matte lipstick was launched across most markets and has exceeded our expectations,” she said. Color remains a particularly important category to Avon, according to McCoy. “The color category opens the door to bringing in new representatives,” she said.
Avon’s ending representative base was up 2 percent for the quarter – increasing for the fifth consecutive quarter.
In Europe, the Middle East and Africa, revenue was down 2 percent year-over-year to $520.4 million, but up 11 percent in constant currency. South Latin America had revenue of $426.4 million, down 28 percent, but only a 2 percent decline in constant currency. North Latin America sales dropped 11 percent to $204.7 million, but grew constant-currency sales 2 percent. Asia Pacific was down 17 percent and 10 percent when adjusted for currency, to $136.7 million. That number was down because sales in the Philippines were flat, partially due to a change in campaign cycles and the date of Easter, McCoy said. She said she expects the region to be “under pressure” for the rest of the year.
Revenue from Russia was up 5 percent – or 25 percent in constant currency – driven by an increase in active Avon representatives. Brazil, which made up 20 percent of Avon’s 2015 sales, was down 7 percent on a constant-currency basis.
Avon has reduced debt by $412 million, and plans to pay another $250 million by the end of 2016. Avon shares traded up slightly in mid-morning trading, roughly 2.8 percent, to $4.42.