AVON NET VAULTS 28.3 PERCENT

Byline: Evan Clark

NEW YORK — Backed by an almost 30 percent increase in first-quarter earnings, Avon chief executive officer Andrea Jung tried Friday to dispel some of Wall Street’s concerns about the company’s direction and financial health.
Net income jumped 28.3 percent, to $81.7 million, or 34 cents a diluted share, from $63.7 million, or 27 cents, a year ago. Avon said income from continuing operations before accounting changes rose 16.5 percent, to $82 million.
Sales for the period ended March 31 rose 3.1 percent, to $1.35 billion compared to $1.31 billion a year ago. Excluding the negative effects of currency exchange, Avon said sales were up 8 percent.
The improved results came from a 5 percent sales increase in its core cosmetics, fragrance and toiletries business, on a 6 percent jump in units sold. Active representatives rose 13 percent compared to a year ago.
Investors were apparently swayed by Jung’s reassurances, the results or both, as they pushed up shares of the company $2.56 to close at $40.96 on the New York Stock Exchange on Friday.
Jung told analysts on a conference call Friday that she has been “extremely concerned” over what she described as “misinformation” on Wall Street about Avon’s strategies and outlook.
Among the perceptions she wanted to clear up was the stagnation of Avon’s brand image. The company’s new “Let’s Talk” advertising campaign, which began this spring and includes tennis stars Serena and Venus Williams as spokeswomen, was one brand-enhancing move that Avon highlighted on the call. Additionally, more than half of the firm’s new U.S. representatives are under 35 years old and more likely to attract a younger clientele. Jung noted for comparison that only 34 percent of all women in the U.S. are under 35.
She added in a statement that the firm will continue to “fund additional investments to enhance Avon’s brand image and contemporize our direct-selling channel, on top of the $100 million increase in strategic spending last year.” Most of that spending was devoted to beauty, which also will be the primary focus of an additional $40 million in strategic spending this year. Jung said “meaningful incremental investments” such as this are key to bolstering the brand, especially during periodic economic slowdowns.
Jung added that second-half results also will be buoyed by the new BeComing retail initiative rolling out in 200 J.C. Penney Co. and Sears, Roebuck & Co. stores this August, as well as continued momentum from the 15-market launch of Avon Wellness, a new line of women’s health and well-being products.
Regionally, North American sales and operating profits for the first quarter each increased 2 percent. Sales of beauty products rose 6 percent. European sales grew 9 percent, a 17 percent boost excluding foreign currency exchange. Sales declined 4 percent in the Pacific region, but rose 7 percent in local currency.
Latin America’s sales grew 6 percent for the quarter and 12 percent on a local-currency basis. While Chile and Argentina had weak results, operating profits were up 12 percent, reflecting strong increases in Mexico, Brazil and Venezuela. As reported, the firm said Thursday that currency fluctuations in the region would not significantly affect the overall corporation’s results for the year.
For the second quarter, Jung said Avon was comfortable with the current consensus earnings estimate of 57 cents a share.

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