Avon Slumps to Strong Sell - Analyst Blog

On May 3, 2014, Zacks Investment Research downgraded global beauty firm Avon Products Inc. AVP, to a Zacks Rank #5 (Strong Sell) from a Zacks Rank #4 (Sell).

Why the Downgrade?

Shares of AVP slipped 1.1% after it released its first-quarter 2014 earnings on May 1, 2014.

The top line disappointed during the reported quarter as it tanked 11.1% to $2,183.6 million. Revenues also fell short of the Zacks Consensus Estimate of $2,240.0 million with a decline in sales in all operating segments and geographical regions.

Avon, which competes with Inter Parfums Inc. IPAR, registered a 12% revenue decline in its Beauty Products and a 9% decline in Fashion & Home revenues. Region wise, Avon's revenues fell 7% in Latin America, 22% in North America, 11% in Europe, Middle East and Africa (EMEA) and 17% in the Asia-Pacific division.

Avon's quarterly adjusted earnings of 12 cents a share slumped 50% year over year, missing the Zacks Consensus estimate of 20 cents. Moreover, the company's adjusted operating margin contracted 240 basis points to 6.1%, primarily attributable to revenue decline related to fixed expenses and a negative foreign currency translation.

The company's dismal results triggered a downtrend in the Zacks Consensus Estimate, as analysts become less constructive on the stock's future performance. The Zacks Consensus Estimate for fiscal 2014 and 2015 fell 9.9% to $1.01 and 5.9% to $1.11, respectively in the past 7 days.  

Other Stocks That Warrant a Look

Other better-ranked retail stocks that look promising and are expected to continue with their upbeat performance include Rite Aid Corp. RAD and Bon-Ton Stores Inc. BONT, both carrying a Zacks Rank #1 (Strong Buy).