Market Overview

Avon Profits Don't Smell Too Good


It was revealed on Tuesday that Avon Products (NYSE: AVP) has reported a 2% drop in quarterly sales, thanks to higher costs and the fact that the number of active sales representatives has dropped.

The bad news continues for AVP too, with the world's largest direct seller of cosmetics reporting that net income fell 81.5% in the first quarter. That's a stunning decline for the company, and one has to wonder if it will regret turning down the $10 billion takeover offer from rival Coty last month.

It is far too soon to say, but new CEO Sheri McCoy will certainly know now that she has her work cut out for her. Avon reported net profit of $26.5 million, or 6 cents per share, on revenue of $2.58 billion. Compare that with a year earlier, when the company reported net income of $143.6 million, or 33 cents, on revenue of $2.63 billion.

As well as the higher costs and lack of sales reps, AVP has seen increasing competition from drugstores in the U.S., price drops in Eastern Europe and problems with the ordering systems in Brazil. These are the sort of issues that McCoy will have to deal with fast. Employees are already being laid off.

Avon's profit sat at 10 cents, which is significantly below the 28 cents analysts had predicted.

North America seems to be where the company is currently falling down, with revenue down 4% to $490.3 million. Roughly 80% of its more than $11 billion annual revenue now comes from overseas.

The company, whose brands include Skin-So-Soft, Anew and Mark, is doing better abroad. In Latin America, revenue edged up 1% to $1.14 billion.

Avon won't be saying too much on guidance just yet either, saying in a statement that, "We look forward to communicating further with investors about our future growth strategy at the appropriate time.”

Some investors and shareholders will feel that they deserve more.

Follow me @BCallwood.

Posted-In: Earnings News Retail Sales


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