Avon’s second quarter will be hit by large restructuring costs
Results for the period will be released at the end of the month but the cosmetics direct seller has said it expects significant costs to affect performance during the quarter, related to the company’s extensive restructuring plans.
The majority, $77m, is related to a new plan announced earlier this year which is focused on improving supply chain and manufacturing operations, while the remaining $13m is related to 2005’s plan.
In total, the company envisages $165m in costs from the new plan but said the changes to the business will help save $200m annually from 2012-2013.
“We are on track to achieve our stated goal of approximately $200m in total annualised savings by 2012-2013, with costs to implement all initiatives expected to be in the range of $300 – $400m,” said Avon’s chief finance and strategy officer Charles Cramb.
The company also announced details of the job cuts and the affect of the plans on the workforce. In total 2,300 Avon employees will be affected with a total of 1,200 jobs cut by 2013.
Factory closures in US and Europe
In addition, the company will be closing of a number of US and Western European facilities.
In Western Europe its German manufacturing facility in Neufahm will be closed by mid 2011, and production will be transferred to other locations including Garwolin in Poland.
In the US, production at the Springdale, Ohio site will be phased out by mid 2012 and manufacturing will be moved to Marton Grove in Illinois and Celaya in Mexico.
In further cost saving measures, the company said it will make greater use of contract manufacturers to replace production lost at both the German and US facilities.
And it is not just manufacturing that will be affected under the extensive plans. Springdale’s return goods operation will close and be relocated to other Avon facilities or outsourced, and the customer service call centre will also be relocated.
Q1 suffered from stronger dollar
The company’s first quarter results suffered significantly on the back of a stronger US dollar with sales dropping 13 per cent on last year’s figures. However, discounting currency effects sales rose 3 percent.
Weak sales figures in comparison to the previous year contributed to a drop of 36 percent in net income, exacerbated by increased advertising and promotional costs.
Avon’s second quarter results will be announced later this month.