Beauty Units up 3% at Avon

03 Aug '09

5 min read

Avon Products Inc reported second-quarter 2009 total revenue of $2.5 billion, 10% lower than that of 2008's second quarter, but up 5% on a local-currency basis as foreign exchange pressured growth by 15 percentage points. Beauty sales in the second quarter 2009 were 10% lower versus the prior-year period, but increased 5% on a local-currency basis. Active Representatives grew 11%. Units overall rose 2% versus the prior-year quarter and Beauty units increased 3%.

Andrea Jung, Chairman and CEO, remarked, "Our bold strategies to counter the recession are working. We've been successful at gaining Representatives and consumers during these tough economic times. This confirms our belief in the inherent advantage of our direct-selling business model. As women around the globe are seeking income and smart value products, Avon is there to meet their needs.

"From an earnings perspective, our results included substantial costs associated with our recently launched 2009 restructuring program. These actions reflect our continuing determination to transform our cost structure to help fund growth. Also, foreign exchange continued to significantly pressure profits, as expected. We are taking aggressive steps to help offset the foreign-exchange impact throughout our value chain, the benefits of which should be stronger in the second half of 2009.

Ms. Jung concluded, "Our focus on driving market share gains, coupled with a constant turnaround mentality, reflects our commitment to emerge as a stronger and more competitive company."

Avon's Beauty sales decreased 10%, but were up 5% in local currency in the second quarter. On a local-currency basis, fragrance, color cosmetics, personal care and skin care grew 8%, 7%, 6% and 1%, respectively. On a reported basis, fragrance, color cosmetics, personal care and skin care sales-growth rates were -9%, -9%, -10% and -12%, respectively.

Second-quarter 2009 gross margin of 62.2% was 150 basis points below that of the prior-year quarter, as price increases, manufacturing productivity gains and benefits from the company's Strategic Sourcing Initiative helped to mitigate 210 basis points of unfavorable transaction-exchange impact.

Selling, general and administrative expense rose as a percent of revenue by 480 basis points versus 2008's second quarter due to costs to implement restructuring initiatives, lower revenue and disproportionate dollar-denominated expenses.

Advertising for the quarter was $82 million, down $21 million from last year's period due primarily to foreign exchange. Advertising expense also benefited from improved buying productivity and general softness in media pricing. Thus, the company was able to maintain its advertising presence at a level similar to a year ago. Avon invested an incremental $13 million in the quarter on initiatives to further improve its Representative Value Proposition.

As announced earlier this month, second-quarter2009 expenses included costs associated with the company's 2009 and 2005 restructuring programs totaling $89 million pretax, or $.19 per share after tax. This compared with costs of $13 million, or $.02 per share, related to the company's 2005 restructuring program in the prior-year period.

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