Avon Q3 sales show strong gains from new markets

By Simon Pitman

- Last updated on GMT

Related tags Percent North america United states dollar Revenue

Avon Products reported above market average sales growth for the third quarter, a result that was driven by strong growth in new markets that helped to offset falling North American sales.

Third quarter group sales rose 4 percent to $2.7bn, a figure that was negatively impacted by 2 percent due to currency exchange rates, as the dollar weakened against many international currencies during the period.

“Third quarter revenues were softer than we had expected, however we maintained our commitment to strategic growth investments,”​ said Andrea Jung, whose comments were reflected by the investment world as results missed analysts’ expectations.

“We continue to expect sales growth for the full year of at least single-digits in constant dollars, but now expect operation margin to be roughly flat,”​ she added.

Higher costs impact income

Although restructuring has left the company in a stronger position, it has continued to be impacted by higher costs, particularly increased expenses for advertising and marketing attributed to the highly competitive market conditions.

Net income was significantly impacted by continued losses from the company’s Venezuelan operations, following the devaluation of the currency at the beginning of the financial year.

This meant that net income rose by 6.6 percent, from $156m in the third quarter of 2009, to $167m.

On a regional basis the company’s results were driven by significant gains in its biggest market, Latin America, where investment in expansion is now paying significant dividends.

Latin America goes from strength to strength

Sales for the region increased by 8 percent to $1.21bn, driven by growth in Brazil, Mexico and Venezuela. However, on a reported basis sales in Venezuela were down, accounting for the impact of currency deflation.

The result in North America showed a 2 percent decline in revenues during the period to $531.1bn, reflecting a 6 percent decline in active representation (sales staff) and an 8 percent fall in the number of units sold.

In China the company’s results were also significantly impacted by its move from a direct sales model to a hybrid model. This meant that sales for the quarter fell by 30 percent to $47.1m.

Russia market continues to develop

In the Central and Eastern European market the story was mixed. Despite a 6 percent gain in sales from the biggest market, Russia, the reported results were down 1 percent to $310.8m, which represented an increase of 2 percent at a constant exchange rate.

The story was better in the Western Europe, Middle East and Africa market, where sales grew by 11 percent to $332.1m, a figure that was positively impacted by the acquisition of the Liz Earle business as well as an increase in active representation.

Looking ahead to the full year, the company says it is expecting 2010 sales figures to grow at mid-single digit figures.

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