Avon Products Inc. is far from financial redemption, but its new leader Jan Zijderveld is sounding a positive note and looking to make some big changes.
The mass beauty brand said sales for 2017 as a whole and for the fourth quarter declined 2 percent on a constant dollar basis, hitting $5.7 billion and $1.6 billion, respectively. Avon’s net profits totaled $91.5 million in the fourth quarter, up from a $10.7 million loss a year earlier. Profits for the year tallied $22 million, up from $107.6 million.
Within that, Avon’s beauty sales fell 1 percent with declines in all categories, and sales in fashion and home fell 5 percent.
A relatively improved profit performance, much of which can be traced to internal cuts that saved Avon $250 million over last year, isn’t enough for Zijderveld, the company’s brand new chief executive officer, who said in his first public remarks in the role that such an “iconic company” can do better.
“The performance is not what it should have been,” he said. “I came here because I can make a difference. Avon is operating in a dramatically changing consumer and competitive environment and business as usual is not an option.”
Zijderveld, who spent 30 years at Unilever before succeeding Sheri McCoy at Avon after months of activist pressure, added that the firm’s board has given him “a clear mandate to dive deeply into all aspects” of the company’s operations.
“We are taking a fresh look at everything with the sense of urgency that you would expect,” he went on. “We have extensive travel plans, to spend time in all of our markets, talk to our representatives and managers and understand the reality of our operating climate and competitive landscape as a basis to improve our performance.
“I’m conscious a significant turnaround is needed, but I am sure we can unleash the potential power of this iconic business,” Zijderveld added. “My primary objective is to accelerate the pace of change, drive quality growth and strengthen Avon’s position as a market leader. While we will really require time to complete our review and refine our plans, I can assure you we will act decisively and, above all, with a sense of urgency.”
Zijderveld’s assurance seemed to convince Wall Street, at least for now, as Avon’s stock rose 11.11 percent to $2.55 on Thursday, the highest level since mid-September.
While Zijderveld said Avon on the whole is “skewed toward developing and growing markets,” the company saw sales slip in most regions last year. Revenue from Europe, the Middle East and Africa fell 4 percent in constant dollars, which Avon attributed to a decrease in representatives and smaller orders. That also caused an 8 percent constant dollar decline in Russia and an 11 percent constant dollar decline in the U.K., along with a 4 percent drop in Brazil, a 2 percent fall in Mexico and a 3 percent decline in the Asia-Pacific region.
Meanwhile, sales in southern Latin America were “relatively flat,” making the Philippines the only growth region, with a 3 percent constant dollar increase in sales last year.
Jamie Wilson, Avon’s chief financial officer, said sales in the company’s top 15 markets were flat, noting that active selling representatives “declined more than anticipated.” She added that an increased mix in prices did not make up for the declines as expected, “leaving us behind our expectations for the quarter.”
Coinciding with weak performance, Wilson said Avon is closing its Australia and New Zealand business, a move that was accounted for in the 2017 results. The company overall is on track to cut a total of $350 million in costs over three years and Wilson said reviews of its cost base are ongoing.
The cfo went on to note that Avon’s “key initiative” to utilize shopper and seller data needs to be accelerated to ensure steadier revenues in the future. Wilson said there will be a focus on mobile this year and a simplification of Avon’s compensation structure for representatives, along with a longer-term focus on a “service-first mind-set.”
“We need to deliver a step change in service performance from demand forecasting through delivery,” Wilson said. “For example, we are testing campaign planning automation, which uses analytics to drive improvements and demand forecast. We understand this will take time, but it is a crucial improvement.”
Nevertheless, Avon is still projecting revenue growth in 2018 in the mid-single digits. When prodded about that seemingly hopeful figure, and how exactly the company plans on actually realizing it, Zijderveld admitted: “Strategy is 10 percent, execution is 90 percent.”
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