Avon's financial problems continue in self-confessed 'tough' quarter

By Chris BARKER

- Last updated on GMT

Related tags: Revenue, Avon

Avon reported continuing poor financial results in Q3
Troubled cosmetics manufacturer Avon has reported a poor third quarter for 2013 as a result of low sales in North America and weakness in emerging markets.

In a quarter that the company frankly describes as “tough,” ​sales and net revenues both fell significantly lower than anticipated by analysts.

Staff numbers were also cut, with the number of company sales reps dropping by 3% over the course of the financial period.

“Macroeconomic headwinds” ​were blamed for Avon’s struggling business, as well as business weaknesses in a number of different regions.

Sheri McCoy, CEO of Avon, commented regarding the results: "The third quarter was tough. Our quarterly performance was negatively impacted by macroeconomic headwinds and continued weakness in some parts of our business, particularly North America. However, overall, Avon is headed in the right direction, parts of our business are stabilizing, and we are making progress toward our three-year financial goals."       

Declining sales

In total, revenue and sales both fell by 7% relative to 2012. This effect was most severe in the Americas, with the worst drops occurring in North America and Mexico.

In Mexico, sales dropped by 5%, due in part to mistakes made by the company whilst pricing their inventory and fierce competition from competitors.

However; the most dismal results were in the US, where beauty sales fell by a shocking 20% with the biggest losses in skincare and fragrance. Gross margins also tumbled as a result of declining revenue combined with continued fixed expenses.

Even Russia, a fast-growing cosmetics market, showed a 2% decline in sales relative to the same quarter 2012.

Strategic problems

Avon is suffering from a number of difficulties in competing with its strategic rivals and has been extensively restructuring in an attempt to cut costs.

The company recently closed down all French operations as a result of declining sales and consistent operating losses, after a 50 year history in the country.

Marlous Kuiper, an analyst for Euromonitor, pointed out that Avon has also begun to pull back from other areas of low market penetration, including Ireland, South Korea, Japan and Vietnam.

In total, the firm aims to make savings of $400m by the end of 2015.

Related topics: Financial focus, Business & Financial

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