Avon Revenues Down 18% to $1.8 billion

Operating Loss $38 Million in First-Quarter 2015 Results.

The Luxonomist. 04/05/2015
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«Overall, the first quarter was in line with our expectations despite currency pressures that were greater than anticipated. 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,» said Sheri McCoy, Chief Executive Officer of Avon Products, Inc. «Despite continued foreign exchange pressure, I’m really impressed with how well our teams in market are managing in this volatile environment. This is a payoff for the work we’ve done over the past two years on strengthening our talent and improving core processes.»

Revenues for Avon Products, Inc. decreased 18% to $1.8 billion, but increased 1% in constant dollars, driven by strong growth in EuropeMiddle East & Africa.

  • Active Representatives2 were down 1% year-over-year but reflect a sequential improvement from prior quarters. The overall decline in Active Representatives was driven by North America, partially offset by growth in a number of markets, most significantly Russia. Average order2 increased 2%, which benefited from price increases in markets experiencing high inflation (Venezuela and Argentina).
  • Total units decreased 2%, driven by a decline in North America. Price/mix was up 3% during the quarter, aided by pricing in markets experiencing high inflation.
  • Beauty sales declined 17%, but increased 3% in constant dollars. Fashion & Home sales declined 19%, or 3% in constant dollars.
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Gross margin was 60.6%, up 440 basis points.  Adjusted gross margin was 61.4%, down 10 basis points, primarily due to the unfavorable impact of foreign exchange, partially offset by lower supply chain costs.

Operating margin was (2.1)% in the quarter, up 20 basis points. Adjusted operating margin was 5.7%, down 40 basis points, primarily due to the unfavorable impact of foreign exchange. Increased advertising, primarily for new product launches of color cosmetics in Brazil, was also a factor. These unfavorable impacts were partially offset by continued benefits from cost savings initiatives.

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The effective tax rate from continuing operations was (77.2)%, compared with (18.6)% in the prior-year periodThe Adjusted effective tax rate was 67.9% for the first quarter of 2015, compared with 46.3% for the first quarter of 2014. The higher 2015 Adjusted effective tax rate is primarily due to the inability, in accordance with GAAP, to recognize additional deferred tax assets related to the Company’s current-year, U.S.-based operating results, as a result of the valuation allowance recorded in fourth-quarter 2014. This caused an approximate 22 point negative impact on our 2015 Adjusted effective tax rate.

Net loss was $146 million, or a loss of $0.33 per diluted share, compared with a net loss of $167 million, or a loss of $0.38 per diluted share, for the first quarter of 2014. Adjusted net income was $17 million, or $0.04 per diluted share, compared with Adjusted net income of $52 million, or $0.12 per diluted share, for the first quarter of 2014.

Avon continues to expect constant-dollar revenue to be up modestly in 2015 as compared with 2014. However, based on recent foreign currency rates, revenue in reported dollars is expected to be negatively impacted by foreign currency translation, which is now expected to have an approximate 17 point negative impact (compared with the previous outlook of an approximate 12 point negative impact).

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The Company now expects Constant-dollar Adjusted operating margin to be approximately 50 basis points lower than 2014. While the Company expects to be able to offset the additional foreign currency transaction costs, the approximate 50 basis point decline is due to the new Industrial Production Tax («IPI») law on cosmetics in Brazil, which is effective May 1, 2015.

In addition, the strengthening U.S. dollar is expected to cause a larger negative impact from foreign currency translation than originally anticipated on the Company’s Adjusted operating margin in reported dollars. As a result, the Company now expects Adjusted operating margin in reported dollars to be down approximately 200 basis points as compared with 2014, due to the expected impact from foreign currency translation and IPI.

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