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Avon turnaround is ‘taking longer than anticipated’

By Andrew McDougall+

31-Jul-2014
Last updated on 01-Aug-2014 at 12:56 GMT2014-08-01T12:56:27Z

Avon turnaround is ‘taking longer than anticipated’

Avon Products admits that the company’s turnaround is taking longer than expected due to a difficult financial climate and tough markets, after announcing profits shrank in its second quarter.

Total revenue of $2.2 billion decreased 13%, while total units decreased 6% and price/mix was up 3% during the quarter.

The direct-seller put this down to lackluster sales, particularly in Latin America and North America, saying the turnaround was “taking longer than anticipated”.

"As anticipated, our second-quarter results were tough. While Avon's turnaround remains challenging, we are putting the people and processes in place to lay the foundation for returning Avon to sustainable, profitable growth," says Sheri McCoy, CEO of Avon Products.

"As we move to the second half of the year, we continue to expect improved performance."

Progress

In particular, the Avon boss believes progress will be made as the company has now identified what the issues are and what is needed to improve them.

Despite slow sales in North America, McCoy maintains that it is still a hugely important market for Avon.

“We see a lot of competitors doing well in the market,” she said in a conference call. “By 2016 I predict the US business will return to profitability.”

Revenue in North America dropped 20% to $304.1 million, while Asia Pacific revenue declined 13% to $172.6 million and Latin America revenue slumped 16% to $1.05 billion; suggesting there is an uphill battle on the cards.

McCoy, however has not shied away from this and was defiant on the conference call, acknowledging that it will take time to get to where the company wants.

“We are slightly behind where we thought we would be,” she stated. “This is because a few of the issues in the US were more complex than first thought. We still expect to hit our 2016 targets.”

Cost-saving

Last month, Avon said it plans to reduce its headcount by an additional 600 positions, largely in its corporate staff and North America business, as part of the company's continuing turnaround efforts.

The move is part of a broader multiyear cost savings plan and the company has targeted about $400 million in savings.

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