Weak US sales and currency translations hurt Avon results

By Simon Pitman

- Last updated on GMT

Weak US sales and currency translations hurt Avon results

Related tags United states United states dollar North america

Avon Products reported sales down 18% to $1.8bn for its first quarter, a figure that resulted from the double impact of currency headwinds and weak North American sales.

Underlying results looked healthier though, with constant dollar sales increasing by 1%, underlining the hefty impact of currency translations against the strong US dollar as well as the fact that there was strong growth in Europe, Middle East and Africa.

Thanks to the significant restructuring program that has cut back on costs significantly, the net loss was reduced, down from $167m to $146m, while adjusted net income was $17m compared to a figure of $52m.

Breaking the figures down by region

Sales in Latin America were down 22% to $836.8m, a figure that was up 3% at constant currency rates, and one that underlined the significant impact from currency translations as well as VAT adjustments in Brazil.

In Europe, the Middle East and Africa revenues were down 16% to $550.7m, but up 9% in constant dollars, primarily driven by an increase in the number of active representatives as well as a strengthened position in Russia, where revenues were up 26% in constant dollars.

In the North America results were down 18% to $242.1m and down 17% in constant dollars on the back of declines in active representatives, while in Asia Pacific revenue was down 1% to $164.6m and up 2% in constant dollars.

What next?

"Overall, the first quarter was in line with our expectations despite currency pressures that were greater than anticipated,”​ said Sheri McCoy, Chief Executive Officer of Avon Products.

“Continuing on the momentum we saw in the second half of 2014, I'm encouraged to see improvement in our Active Representative trends and constant-dollar revenue growth in the majority of our top markets."

But despite some signs of a turnaround, revenues fell by 12% year-on-year during 2014, and the executive team at Avon know they have a long way to go to turn the business completely around.

Focus on the Americas

As it stands, Avon’s most pressing issues are with its North America and Latin America operations, which currently account for approximately 50% and 10% of the total global business, respectively.

In Latin America, industry experts believe that the major focus should be on the Brazil market, where direct sales cosmetics remains an important business area.

Long-term investment by Avon is expected to continue in Brazil with benefits expected to come from commercial partnerships with other leading cosmetic brands already present in that market, which have already include a venture with Coty, announced at the beginning of last year.

In North America the company has been losing revenues on account of the major shift to alternative retail channels, including social media and other online retail channels.

In line with this, Avon has chosen to invest significantly in its online portal, Avon.com, and is retraining its active representatives to increase engagement with consumers by using a social media model.

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