Avon growth held back by 'blips' in developing markets

- Last updated on GMT

Related tags: Cent, Revenue, United states

The gap is growing between Avon's leading market, the US, and the
rest of the world, as growth in both second quarter revenue and net
income continues to prop up a sagging domestic performance. But a
dip in China sales and slower than expected growth in Central and
Eastern Europe also affect the overall results, reports Simon
Pitman.

Avon​ reported revenues for the group grew by 6 per cent as a whole - well down on the same period last year, as well as a dip in revenue of 6 per cent for the US market. However, double digit growth in Europe and Latin America has helped to counterbalance the fall.

In local currency, group revenue rose 2 per cent to reach $2.0 billion, which the company pointed out comes on top of 13 per cent growth in the same period a year ago.

But revenue in the quarter came in below expectations as a decline in China sales caused by the imminent resumption of direct selling in that country; and lower-than-anticipated revenue growth in key Central and Eastern Europe markets resulted in underperformance.

Total Beauty sales in the second quarter 2005 rose 7 per cent, while net income was $328.6 million, compared with $232.3 million a year ago.

Alongside the dip in revenues, operating profit fell by 14 per cent in the US, reflecting the continued high level of competition there. Beauty sales declined 11 per cent "due to continued weak customer purchase frequency in an environment of stepped-up competitive activity"​. The one bright spot in the US performance was the company's Beauty Plus sales, which increased 5 per cent.

Things were a lot rosier in Europe though, where second quarter revenues increased 12 per cent - despite revenues increased by 28 per cent in the same period a year ago. Central and Eastern Europe revenues grew by 16 per cent, with revenue in Russia increasing 17 per cent, below the company's planned levels.

In Latin America, strong results in Brazil and Venezuela and a solid performance in Mexico, helped fuel a 17 per cent rise in revenues. In Asia Pacific, revenue was flat, mainly impacted by a 19 per cent decline in China revenues.

Avon CEO, Andrea Jung, said, "The situation in China was clearly unexpected. We are moving rapidly to assure our Beauty Boutique owners that they will have an opportunity to earn as much or more with Avon in our future model, and believe this will be a transitional issue.

"In Central and Eastern Europe, where our topline momentum continues to be strong and we remain confident in our beauty leadership position, we have significantly enhanced our marketing offering and implemented aggressive plans to accelerate order growth in the back half of the year."

Looking ahead the company said that it expected its revenue growth to accelerate to 7-8 per cent for the second half of the year - a figure that is below the company's previous expectations.

On a regional basis the company says it expects the US revenue trendline to improve, with revenue slightly down compared to the 2004 figure. European revenue is expected to continue to increase in double digits, whereas Latin American revenues should growth in the high teens. As the China market recovers, Asia Pacific revenues is expected to increase into mid-single digit figures.

Jung said she was confident that growth trends would pick up again in both China and the Central and Eastern European markets, adding: "If all of these actions and trends play out in the back half of the year, we can achieve the top end of our earnings projection. However, given the volatility we've experienced in recent quarters on a number of fronts, we believe that it is prudent to allow for further risk, thus the breadth of our forecast."

Related topics: Business & Financial

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