Shares of Avon Products Inc. dropped 20 percent to close at $3.45 after the beauty company posted a third-quarter earnings miss.
For the quarter ended Sept. 30, the firm ended in the red with a $697 million loss, or $1.58 a diluted share, against net income of $91.4 million, or 21 cents, a year ago. Total revenues dropped 22 percent to $1.67 billion from $2.14 billion, which included a 20.8 percent decline in net sales to $1.63 billion from $2.06 billion. Wall Street was expecting earnings per share of 8 cents on revenues of $1.68 billion.
Sheri McCoy, chief executive officer, told Wall Street analysts during a conference call that the period ended “was clearly a difficult quarter. Avon continues to face unprecedented headwinds. Nevertheless, I believe that they are tangible signs of progress regarding the underlying health of our core business.”
She noted that the company is “disproportionately exposed to both foreign currency headwinds and the weaker-than-usual macro economic backdrop for emerging markets.” By region, the EMEA — Europe, Middle East and Africa — delivered “solid constant dollar revenue growth in line with our expectations,” she said, and while Russia delivered strong revenue growth, the U.K. underperformed. McCoy noted that in Latin America, Mexico remains steady, and while there are macro challenges in Brazil, there also were increases in both active representatives and in average order. In North America, progress was slower than the company would like, with the trend in active representatives still down when compared against the prior year. The Philippines, the largest market for the Asia-Pacific region, continued to perform well, but not well enough to offset declines in other markets, specifically China, McCoy said.
By category, beauty declined 1 percent in constant dollars, hurt by 4 points due to the IPI tax in Brazil and a divestiture of Liz Earle. The color category in constant dollar performance was flat versus a year ago. The fragrance category saw a 4 percent growth in constant dollar basis driven by Latin America and EMEA. Global sales in skin care were down 6 percent in constant dollars.
“In light of the challenges we face, I often get questions from you on what I see in the business that is encouraging. Top of my list are local market teams, which are performing well under very challenging circumstances. They are navigating through the impact of inflation, devaluation, geopolitical issues, consumer spending slowdown and other economic pressures, all while keeping our representatives and consumers engaged,” McCoy told analysts.
As for its representative base, the ceo said active representatives fell 1 percent for the quarter driven by North America, Venezuela and Argentina. Year-to-date performances improved when compared with the year-ago period, and in the top 12 markets, the company saw modest growth in active representatives, McCoy said.
As for Brazil, McCoy said one issue it faces is the local currency devaluation. She said the real continues to decline against the U.S. dollar. Year-over-year, the decline has been a 40 percent devaluation, McCoy said. Further, a higher tax burden, which went into effect May 1, has negatively impacted its color and skin-care growth, she said.
In the U.S., the main focus has been on “improving representative engagement and right-sizing our cost structure,” she said, and while progress has been made, it’s biggest issue is that “we still need to bring in and retain more new representatives.”
McCoy also told analysts that she doesn’t expect things to reverse in the foreseeable future, although the company is taking actions to drive “near-term pressure on the business and create longer-term profitable growth.”