Avon hit by flat US dollar sales and fresh SEC China probe

By Simon Pitman

- Last updated on GMT

Related tags Percent United states dollar

Avon third quarter US dollar sales were virtually flat, while a renewed SEC probe into bribes in China meant the company’s stock value has plummeted to a year low.

The company reported that dollar sales for the quarter were up by 1 percent to $2.8bn, while foreign exchange contributed a further 5 percent increase in sales to 6 percent, as the weak dollar continued to boost foreign currency income.

Income from continuing operations was slightly down, from $166.7m in the corresponding quarter last year, to $164.2m – a figure that was hit by continuing weakness in developed markets and further impacted by logistical problems in the all-important Brazil market.

The figures reflect a third consecutive quarter of revenue growth, but equally it was the first time in three quarters that net income has fallen.

All categories report sales increases

Breaking the figures down, the company said that it Beauty sales increased 8 percent compared to last year, with fragrance, color, personal care, and skincare grew 12 percent, 9 percent, 6 percent, and 2 percent, respectively.

The only category not to register gains in dollar currency was skincare, which fell 3 percent in constant US dollars in the quarter.

On a regional basis Latin America powered away, with local revenues growing 11 percent to $1.34bn, but in constant dollars the increase was 6 percent, reflecting the problems encountered in the Brazil market.

North America takes a big hit

In North America revenue was down 7 percent to $492m, reflecting the significant difficulties with the US economy, while revenues in Central and Eastern Europe were also up 7 percent to $332m, a figure that was flat in constant US dollar terms.

In Asia Pacific sales for the quarter were up 1 percent to $233m, but down 7 percent in US dollars, a figure that was largely impacted by a 6 percent fall in revenues in China.

In Europe and the AME region, sales grew by 9 percent to $363m, a figure that was up in constant US dollars by 6 percent. The region’s results were positively impacted by a VAT settlement in the UK, while sales in South Africa rose by 29 percent.

Challenges in Brazil and macroeconomic environment

"The results of the quarter reflect a challenging ERP implementation in Brazil which caused greater disruptions than we anticipated. This significantly impacted our top and bottom line results. In addition, consumer uncertainty amidst a volatile macroeconomic environment across several of our markets further pressured revenue growth,”​ said Andrea Jung, Avon Product CEO.

Jung added that the company no longer expects to meet its stated target of mid-single digit revenue growth, and said that the company is now re-assessing its long-term business plan and targets, which will be revealed in an investor meeting scheduled for the first quarter of the year.

News of the results, alongside an announcement that the SEC is continuing with its investigation of bribes by Avon company officials in China, sent the company’s shares plummeting to a year low during this week, a fall that was also the company’s biggest in a decade.

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