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Avon CEO pleased with Q4 performance

06 Feb '10
5 min read

Avon Products, Inc. reported that fourth-quarter 2009 total revenue of $3.2 billion was 13% higher than that of fourth-quarter 2008, or 8% higher on a local-currency basis. Active Representatives grew 11% with growth in all regions. Beauty sales in the fourth-quarter 2009 grew 15% driven by gains in fragrance, color cosmetics, and personal care of 11%, 27%, and 19%, respectively. On a local-currency basis, Beauty sales grew 9%, as fragrance, color cosmetics, and personal care sales grew 7%, 19%, and 13%, respectively. Units sold increased 4% in the quarter, and beauty units were up 5% versus a year ago.

Commenting on the company's revenue growth, Andrea Jung, Avon's Chairman and Chief Executive Officer, said, "We are very pleased with Avon's performance in the fourth quarter. Against the backdrop of the global economic crisis, our growth strategy to leverage our smart-value product offering and Representative earnings opportunity paid off to deliver robust Active Representative growth and beauty market share gains in the quarter. We are especially pleased that revenue growth was broad-based across our geographic portfolio. Our Western Europe and Central and Eastern Europe regions, when combined, represent 30% of fourth-quarter revenue and together grew more than 15% (17% in local currency), while Latin America delivered another quarter of double-digit growth."

Fourth-quarter 2009 gross margin of 62.7% was 30 basis points higher than that of the prior-year quarter. Strong manufacturing productivity gains, which include benefits from the company's Strategic Sourcing Initiative and strategic price increases, helped offset an estimated 140 basis points of unfavorable transaction-exchange impact on the fourth-quarter 2009 gross margin.

Selling, general and administrative expenses in the quarter rose as a percent of revenue by 70 basis points versus 2008's fourth quarter. This was due primarily to higher year-over-year costs to implement restructuring initiatives.

Advertising for the quarter was $109 million, up $9 million from the year-ago quarter, reflecting continued support for the company's innovation pipeline. Avon invested an incremental $24 million in Sales Leadership and incentives to further improve its Representative Value Proposition (RVP).

In the fourth quarter, costs associated with the company's 2005 and 2009 restructuring programs were $34 million pretax, or $.06 per share. This compared with costs of $7 million, or $.01 per share, related to the company's 2005 restructuring program in the prior-year period.

Avon reaffirmed that its 2005 and 2009 restructuring programs, as well as its Product Line Simplification Program (PLS) and Strategic Sourcing Initiative (SSI), are on track and showing results. In 2010, the company is expecting to achieve $350 million and $75 million in annual savings from initiatives associated with the 2005 and the 2009 restructuring programs, respectively. In addition, beginning in 2010, Avon expects to achieve annual benefits in excess of $200 million from its PLS program and in excess of $250 million from SSI.

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