Avon Sees Higher Profit in Second Quarter

After spinning off its North America business in March, Avon Products Inc. (AVP—NYSE) began to improve its bottom line in the most recent quarter.

The beauty company is implementing a cost-cutting plan introduced in January that will include trimming its staff and supply chain and moving its headquarters to the United Kingdom. After three years, the plan is expected to save Avon $350 million a year before taxes.

In the quarter ended June 30, the company cleared a profit of $33 million, up from $28.8 million a year earlier. Per-share earnings slipped to 6 cents from 7 cents a year ago. On an adjusted basis, earnings were down from 9 cents a share to 7 cents a share. Analysts polled by Thomson Reuters had expected earnings of 2 cents a share.

Revenue fell 8 percent to $1.43 billion, beating the $1.41 billion predicted by analysts.

Earlier this year, the beauty company inked a deal with Cerberus Capital Management LP for majority ownership of Avon’s domestic operations. Cerberus agreed to inject $435 million into the business, which it then took private as New Avon LLC, along with another $170 million investment in Avon Products.

Revenue was down across the company’s remaining segments, hurt by foreign exchange rates. Constant-dollar revenue was up in all segments except Asia Pacific, where the company logged a 5 percent decline.

“Our performance improvements were broad-base with nine of our top 10 markets growing in local currency,” said Sheri McCoy, CEO of Avon Products. “We continue to make steady progress on a number of fronts: improving pricing discipline; driving additional cost out of the business; and continuing to build our brand and enhance the Representative experience,” said Sheri McCoy, CEO of Avon Products.

Following Tuesday’s release, shares in Avon climbed as much as 21 percent to $5.04—the stock’s biggest intraday jump since Feb. 12. Ahead of the report, the shares were up 2.7 percent this year.


Avon Discloses Plan to Cut Jobs, Move Headquarters to Britain

Photo: Avon’s current European headquarters in the United Kingdom. (HKS Architects)

After spinning off its North America business in a deal with Cerberus Capital Management LP, Avon Products Inc. said next steps will include job cuts and a move to the U.K.

The recent deal saw Cerberus invest $435 million for a 16.6 percent ownership stake in Avon, a maker of beauty, household and personal-care products. The private equity firm paid an additional $170 million for 80 percent ownership in Avon North America, which will now operate as a privately held entity under the name New Avon LLC. Avon, less North America, came away from the table with about $1 billion in cash on the books.

Looking to the future, management on Monday laid out the bones of a three-year plan to streamline continuing operations in more than 70 markets. The strategy includes standardizing roles and processes across commercial operations. On the corporate side, Avon said it will cut both filled and open positions to reduce its global staff by 2,500. At the close of 2015 Avon had 28,300 employees outside its North American operations.

The company also plans to transition its corporate headquarters from New York City to the U.K., where Avon has built up extensive operations. The corporate move will not impact Avon’s other New York facilities in Suffern and Rye.

“The actions we are taking today will bring our corporate and commercial businesses closer together, which will drive efficiencies, improve operational effectiveness and deliver significant cost savings,” Sheri McCoy, CEO of Avon Products, said in a statement.

Management expects to save $50 million this year from payroll cuts and the elimination of open positions. Beginning in 2017, the measures are expected to save around $65 million to $70 million a year. Avon also will record a $60 million charge in the current quarter as a result of the layoffs.

This Week: Herbalife’s Attorney Warns off Ackman, J.Hilburn CEO Talks Holiday Style

Catch up on this week’s industry chatter with these click-worthy links:

  • Fox Business Network’s Charlie Gasparino set Herbalife’s stock price aflutter on Tuesday with news of a letter from Herbalife’s legal counsel to OTG Research Group, the outside research firm of Bill Ackman’s Pershing Square Capital Management. The letter calls on the firm to cease and desist what it terms “improper conduct” on behalf of Herbalife short seller Ackman, including contacting current and former Herbalife employees and offering compensation for confidential information on the company.
  • After having her first child, model Erin Joy Henry found herself mentally and physically depleted, with less time to meet the demands of her career. That’s when she began using health products recommended by a friend in direct selling, despite her skepticism about the business model. Writing for the Huffington Post, Henry shared her evolution from skeptic to direct sales entrepreneur and holistic nutrition counselor, helping other people improve their health and finances in what she calls a “dream career.”
  • Also at HuffPost, J.Hilburn’s Veeral Rathod has some tips on how to be the best-dressed man at any holiday party. Drawing on his expertise as Co-Founder and CEO of the custom menswear company, Rathod lays out a few rules of thumb to help his fellow men celebrate the holiday season in style.
  • Two top Avon executives will exit the company at year-end, according to a report by The Wall Street Journal. The beauty brand’s strategy chief and supply chain head, both brought on by CEO Sheri McCoy in 2013, were named by an anonymous source (paywall). News of the decision, reportedly communicated within the company last month, comes as activist investors including Barington Capital Management LP call for restructuring and new leadership within the company.
  • Scentsy is lighting up the night with an elaborate holiday display at the company’s Meridian, Idaho headquarters. To get the job done, the home fragrance seller tapped a local husband-and-wife team, who set out in October to string 20 miles of lights on hundreds of trees across the corporate campus.

Avon 39 Concludes with $8.7M Walk to End Breast Cancer

This weekend 3,500 women and men walked the streets of New York City in the final leg of Avon 39 The Walk to End Breast Cancer. During the two-day event, participants from 48 states raised $8.7 million in support of breast cancer research and services.

Avon 39 New York was the last of seven walks held from April to October in cities across the U.S. Formerly known as the Avon Walk for Breast Cancer, Avon 39 refers to the 39.3 miles—split into marathon and half-marathon distances—that participants cover throughout the weekend.

The New York walk concluded at Pier 84, where Avon CEO Sheri McCoy congratulated the participants, dubbed 39ers, and presented grants to 10 local organizations. Also on hand was Avon Global Brand Ambassador Fergie, who launched her latest Avon fragrance, Outspoken Party!, at a livestreamed Beauty for a Purpose event held Monday.

“As this year’s Avon 39 series comes to a close in New York, we couldn’t be more grateful for all 3,500 39ers that united together throughout this memorable weekend with one common goal: to eliminate breast cancer,” McCoy told the crowd. “The grants distributed today will help us do just that. I’m honored to have the opportunity to give them to the doctors, researchers and other medical professionals who will use these funds to help change and save lives.”

The Avon Foundation for Women selects local breast cancer organizations to receive Avon 39 funds at the close of each walk. To be eligible, organizations must commit to providing their services to all, regardless of insurance status, demographic background or ability to pay. Since Avon introduced the walks in 2003, participants have raised approximately $590 million to fund breast cancer research and education, as well as assistance for families battling the disease.

Avon Sells UK Skincare Brand to Walgreens

Photo: Products on display at a Liz Earle store on England’s Isle of Wight. (Liz Earle photo)

Natural skincare brand Liz Earle is not commonly associated with Avon, which might have influenced the company’s decision to divest the U.K.-based business. Avon Products Inc. announced Wednesday that pharmacy giant Walgreens Boots Alliance has acquired the retail brand for approximately $215 million.

In a statement, Avon CEO Sheri McCoy said the divestiture allows Avon to focus on promoting its own skincare and beauty portfolio. “This transaction enables Avon to realize immediate benefits while continuing to strengthen our balance sheet,” McCoy noted. “Liz Earle is the perfect fit for Walgreens Boots Alliance where it already has a strong presence in its retail stores.”

Avon acquired Liz Earle in 2010, just months before acquiring Silpada Designs, the direct selling jewelry brand that Avon divested in July 2013. Unlike Silpada, Liz Earle operated as a standalone business from Avon’s core direct selling business. Last year, the skincare brand accounted for 1 percent of Avon’s consolidated revenue and adjusted operating profit and 3 percent of its EMEA (Europe, Middle East & Africe) revenue and adjusted operating profit.

Avon’s latest turnaround measure follows a disappointing 2014 for the beauty brand, which reported a net loss of $331 million on an 11 percent revenue decrease for the year. The company said it will use the proceeds from the Liz Earle sale in its planned redemption of $250 million, 2.375 percent notes due in March 2016.

Avon Posts Earnings Miss on Weakening Domestic Sales

Avon Products Inc. (AVP—NYSE) posted first quarter results on Thursday amid reports the company is considering a sale of its North American business. Earnings fell below Wall Street estimates as domestic revenue continued to decline and the strong dollar overshadowed growth in foreign markets.

Quarterly revenue dropped 18 percent to $1.8 billion, a 1 percent increase in constant dollars. North America revenue was also down 18 percent, hurt by the market’s 17 percent decrease in active representatives. Overall, the company’s representative count was down 1 percent from 2014, though up on a sequential basis.

Earlier this month, The Wall Street Journal reported that Avon is exploring options to hasten a turnaround, including a possible sale of its deteriorating North American business. CEO Sheri McCoy addressed the media attention at the beginning of Avon’s earnings call on Thursday. She said the company aims to provide sustainable, profitable growth while creating value for its shareholders and opportunity for its representatives, and declined to comment further.

Excluding some items, earnings came in at 4 cents a share, a 67 percent decline from last year. Analysts had predicted earnings of 7 cents a share in the period. Diluted losses were 33 cents a share versus 38 cents a year ago. The results reflect a higher adjusted tax rate of 67.9 percent, compared to 46.3 percent in the first quarter of 2014.

The cosmetics maker reported constant dollar growth in all foreign markets, with EMEA leading the way at 9 percent over the prior year. Management said currency pressures were higher than anticipated in the quarter.

via Avon Posts Earnings Miss on Weakening Domestic Sales — Direct Selling News.

Avon Losses Widen as Quarterly Earnings Drop

An increasingly strong dollar weakened fourth quarter salesat Avon Products Inc., and the beauty company expects to feel continued negative effects in 2015. On Thursday the global brand projected that 2015 revenue will decline by 12 percentage points due to currency rates.

Fourth quarter revenue decreased 12 percent to $2.34 billion; however, Avon reported modest 5 percent growth in constant dollars. Quarterly volume fell 3 percent, while the company’s average order increased 9 percent. Active representatives were down 4 percent.

Quarterly sales fell 14 percent in the Beauty category, with a 5 percent increase in constant dollars. Fashion & Home sales fell 13 percent and rose 1 percent in constant dollars.

North America continues to pose the greatest challenge for Avon. The New York-based company saw regional sales fall 12 percent in the quarter and 17 percent for the full year. Avon posted global revenue of $8.85 billion for 2014, an 11 percent decrease versus the prior year, or relatively unchanged in constant dollars. The company reported a net loss of $331 million, or 75 cents a share, broadening its $69 million loss in 2013. Excluding one-time costs, operating profit totaled $734 million.

“While progress against our financial goals in 2014 was slower than I would have liked, I am pleased with the sequential improvements we made in several key markets and categories in the second half of the year,” said CEO Sheri McCoy. “We have stronger management teams across our key markets and better discipline in executing consistently against Avon’s core processes.”

The company also reported declining sales outside the U.S., where it generates 88 percent of its sales. Revenue fell 7 percent in both EMEA (Europe, Middle East & Africa) and Asia Pacific. Latin America, Avon’s most profitable market, posted revenue of $4.24 billion for the year, a 12 percent decrease versus 2013.

The company says that it is working to mitigate the impact of foreign currency rates. In the meantime Avon has announced plans to pull out of Jamaica and other Caribbean islands, the Jamaica Observer reports. A Jan. 29 email from Pablo Muñoz, President of Avon North America, informed distributors that, effective Monday, they will no longer be able to place orders to the company. Avon’s regional managers were not available to provide comment on the contents of the email.

Avon Taps J. Crew Executive as New CFO

Four months after the resignation of its CFO, Avon Products Inc. has announced James S. Scully as the company’s new Executive Vice President and Chief Financial Officer.

Scully brings nine years of experience with specialty retailer J. Crew to lead all finance and IT functions at Avon, beginning no later than April 1. There he will work with leadership on improvements and strategy as the company continues its process of turnaround. Scully’s appointment follows recent changes to Avon’s management structure intended to support this multiyear plan.

Having most recently led J. Crew’s international expansion efforts for nearly two years as Chief Operating Officer, Scully previously served as the company’s Executive Vice President and CFO as well as Chief Administrative Officer. Before that he had spent time at both Saks Inc. and Bank of America in financial strategy and corporate banking capacities.

“[Jim Scully’s] deep consumer expertise, track record of working in complex environments, and experience developing opportunities in international markets make him the ideal fit for Avon,” said Sheri McCoy, CEO of Avon. “He is a seasoned finance and operational leader with public company CFO experience and will play an integral role in driving sustainable and profitable growth at Avon.”

Avon’s previous CFO Kimberly Ross resigned from the beauty company last October to become CFO at oil field services company Baker Hughes Inc.

World Congress CEO Panel Discusses Future of Direct Selling

A powerhouse panel of direct selling company CEOs spent nearly two hours on stage as part of the World Federation of Direct Selling Associations 2014 World Congress in Rio de Janeiro, Brazil.

Mary Kay Inc. CEO David Holl, Amway President Doug DeVos, Oriflame Cosmetics CEO and President Magnus Brannstrom, Herbalife International CEO Michael O. Johnson, Avon Products Inc. CEO Sheri McCoy and Nu Skin Enterprises CEO Truman Hunt participated in a conversation moderated by WFDSA Chairman Alessandro Carlucci. Their topic of discussion: “The Future of Direct Selling in an Increasingly Connected and Borderless World.”

Their message: Each company must choose the right technology, at the right price and right time, and then provide the right training in order to maximize the return. At the same time, it is important to remember that direct selling, at its core, is not about technology at all. It is about one person sharing a product or opportunity with another.

“One of the things that I have championed and people who have come before me, I think, have championed as well is to keep this business simple,” Holl said. “You can come up with a lot of technology. In my opinion if you let the IT department lead you down that path, it will be great technology but the sales force might not use it because it is overwhelming.”

DeVos echoed that advice to keep things simple, recounting Amway’s experience with its launch of the Internet-focused company Quixtar. “We got ourselves …” Read the rest of the story at Direct Selling News.

Read more coverage of the 2014 WFDSA World Congress.

Avon Beats Q3 Expectations, Still Shows Signs of Struggle

The release of Avon Products Inc. third quarter results Thursday before markets opened surpassed earnings expectations while missing revenue forecasts. The company reported adjusted net income from continuing operations of $99 million, or 23 cents per diluted share, beating expectations of 16 cents, according to the Zacks Consensus Estimate, and jumped approximately 64.3 percent from 14 cents, or $60 million, for the third quarter of 2013.

“We began the year with the expectation that the second half of 2014 would show improvement relative to the first half, and Avon’s third quarter results are consistent with modest improvement on both top and bottom line,” said Avon CEO Sheri McCoy. “We saw good results from our EMEA region, while sluggish performance in Brazil contributed to softer results in Latin America. Despite the strong headwinds in a number of markets, we continue to make progress on Avon’s turnaround journey.”

Still shares dropped over 9 percent Thursday, according to Zacks, after results fell short of revenue forecasts. The global cosmetics company posted revenue of $2.14 billion in the period, down 8 percent, or up 1 percent in constant dollars, from $2.32 billion during the prior year period. Analysts expected $2.15 billion, according to Zacks. Revenue was negatively affected by weak foreign exchange rates and lower sales volume, partially offset by the favorable net impact of mix and pricing, primarily due to inflationary pricing in Latin America.

Beauty sales declined 9 percent, but increased 1 percent in constant dollars. Fashion & home sales declined 11 percent, or 4 percent in constant dollars.

Brazil is the company’s largest market and Latin America is its most profitable region, yet Brazil revenue was up only 1 percent, or relatively unchanged in constant dollars. According to the company, this was partially impacted by high levels of competitive activity.

“In addition, the Brazilian economy has not recovered as anticipated after the World Cup. Consumer spending also seems to be impacted by the uncertain economic environment, the election cycle and high cost of debt,” McCoy said during the earnings conference call on Thursday. “That being said, while growth may be slowing, Brazil remains a highly attractive market, and we are committed to participating in its longer-term growth.”

Further results showed that third quarter 2014 gross margin was 61.9 percent and adjusted gross margin was 62.0 percent. Adjusted gross margin was 110 basis points lower than the prior-year quarter.

Read the full results here.