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Is Avon in trouble? Decisions deferred and job cuts planned as Q4 results dip

By Andrew McDougall , 16-Feb-2012
Last updated on 16-Feb-2012 at 17:15 GMT

Outgoing Avon CEO, Andrea Jung
Outgoing Avon CEO, Andrea Jung

Amidst poor financial results and allegations of bribery, cosmetics company Avon is deferring strategic decisions, focusing on the short term and planning job cuts as it enters a transition period, according to outgoing CEO Andrea Jung.

Avon Products’ fourth quarter sales took a significant dive as the company posted a net loss during a time when it has also been wrapped up in the ongoing bribery investigation which saw vice chairman Charles Cramb leave the firm.

This year will not be the year

Speaking in a conference call, Jung accepted that the last year has been a challenging one for the company and admitted that margin recovery was not in Avon’s sights for the upcoming year.

“In terms of 2012 and how we are operating the business in the near term, our priorities are improving top line performance, cost management and cash generation,” she said.

“After a challenging 2011, the priority is restoring revenue growth. Direct selling is a momentum business. However, sustainable growth will take time, and there are still factors of macroeconomic weakness and internal volatility over the next several quarters.”

Cost reduction means job cuts

One area Avon are addressing in the hopes that it can recover its margin as soon as possible is cost reduction.

Whilst she would not reveal a specific number, Jung stated: “we are close to completing the first phase of identifying cost opportunities focused on headcount”, announcing that the extent of this will be revealed in the near future.

Furthermore, whilst Avon reiterates that it is not standing still during the transition period and is addressing key areas to aid recovery, the company has said it will have to defer many operational decisions.

“While I am deferring decisions that have strategic impact for the longer term, we are making decisions that are necessary to keep the business recovery moving forward,” said Jung.

Decisions being deferred

An example of an organizational decision being deferred is whether or not to appoint a chief operating officer; a situation Avon finds itself in due to the current search for a CEO.

Avon has revealed that the search is underway following the decision to move Jung to executive chairman and hire externally for the new position.

The cosmetics company announced in December last year that Jung would step aside as CEO once a replacement was found, and become executive chairman for at least two years.

However, Jung’s future as chairman may be in doubt, according to Bloomberg, as reports suggest that finding a top candidate to become CEO as long as Jung is still there may be an issue.

Playing then waiting game

Speaking directly about the leadership transition since its announcement last December, Jung said: “This is a time of tremendous change for the company, and my critical priority is providing stability and day-to-day leadership as we continue to motivate and focus our 40,000 associates and our millions of representatives.”

Avon would not comment in-depth on the operational and financial review of the business until the CEO situation had been settled.

“It clearly makes sense to wait until a new CEO is on board and takes the appropriate time before sharing longer-term financial and operating objectives for 2013 and beyond,” quipped Jung.

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