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Avon first quarter results highlight big challenges

By Simon Pitman+

06-May-2014
Last updated on 06-May-2014 at 17:09 GMT

Avon first quarter results highlight big challenges

Share prices have continued to dive following the announcement of the direct sales giant’s first quarter results, which show a big dip in both profits and revenues.

Avon’s revenue for the quarter was $2.2bn, which was a decrease of 11%, or 3% in constant dollar terms, reflecting a drop of 6% in total units sold.

Hardest hit was the company’s beauty sales, which were down by 12% and 4% in constant dollars, while the fashion & home sales declined by 9% and 1% in constant dollars.

Quarterly loss adds to total debt

The company also posted a net loss of $167m for the quarter, which compared to a loss of $12m in the corresponding period last year, which means its total net debt is now up by around $300m to $1.9bn.

During the quarter the company was hit by the devaluation of the Venezuelan bolivar, causing a devaluation of approximately 88% against the US dollar. The company says that this led to an after tax loss of $42m for the quarter, with a further $116m adjustment to the cost of sales for the period.

On top of this, the company also recorded a further $23m in restructuring costs during the quarter, relating to the company’s $400m cost saving initiative.

CEO Sheri McCoy 'not satisfied'

"As I look at our first-quarter results, I'm not satisfied with our performance, but I'm encouraged by our progress," said Sheri McCoy, Chief Executive Officer of Avon Products.

"We saw significant headwinds that further impacted our financial results, particularly in EMEA.  However, we continue to stay the course on our plans to return Avon to sustainable, profitable growth."

On a geographical basis, the best performing market was Latin America, where sales were down by 7% to $1.06bn, which actually represented an increase of 7% in constant dollar terms, a figure that was largely impacted by the devaluation of the currency in Venezuela.

Latin America results look better against other regions

The biggest gains were seen in Brazil and Mexico, where constant dollar revenues were up 5% and 8% respectively, while constant dollar revenues in Venezuela were up by 54%.

In Europe, the Middle East & Africa, revenues were down 11% to $654.8m, which represented a fall of 5% in constant dollars, while in Asia Pacific revenues fell 17% to $166.4m, or 10% in constant dollars.

However, the biggest dip in revenues was seen in North America, where revenues were down 22% to $295.7m, as the result was mainly impacted by a fall in sales representatives that led to a decline in units sold.

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