Avon’s stock fell nearly 22% to $17.50 Thursday following dismal third quarter results.
Overall the company posted a sales decline of 7%, or 1% in constant dollars, to $2.3 billion. The beauty firm recorded a net income loss of $5.5 million, compared to income of $31.6 million a year earlier, for the period ended Sept. 30. Beauty sales fell 9 percent to $1.66 billion, or 2 percent in constant dollars.
“Working a turnaround is not a linear process,” said Avon CEO Sheri McCoy on a conference call with analysts. “It (the quarter) was tougher than we expected.” However, she said, “We are course correcting when necessary and we are making progress toward our three-year goals.”
Avon’s footprint in the U.S. continues to shrink with sales in North America down 19% to $328.6 million in the third quarter as the new decentralized management model causes continued disruption and loss of representatives.
Disorder from the implementation of new technology in Canada added to the decline in North America where revenues slid to $328.6 million. Beauty sales fell 20% due to skin care and fragrance weakness, while fashion and home fell 16%.
Asia-Pacific also suffered double-digit declines with sales down 22%, or 19% in constant dollars, to $167.4 million. The region is currently under interim management awaiting a permanent appointment, and Avon has been unsuccessful at stabilizing China where revenues plummeted 67%, or 69% in constant dollars. The brand’s departure from the Vietnam and South Korea markets also contributed to the results. And softness in China is expected to persist as Avon fine-tunes its Beauty Boutique model.
In Latin America revenues slid 5% to $1.2 billion, although they were up 6% on a constant basis. Brazil rose 1%, or 13%, on a constant basis with help from successful beauty launches including Encanto personal care. Sales in Europe, Middle East and Africa were flat, or up 2% in constant dollars, to $619.2 million.
To stabilize the business, Avon is strengthening representative recruitment efforts, improving the brochure and working on a better price/merchandise mix to boost profits. Sheri noted that in the U.S. the company’s changes were too wide and fast; going forward they will be “evolutionary, not revolutionary.” The global launch of the refreshed Avon Color brand is underway bringing good early results, while the new You Make it Beautiful global advertising campaign tailored to each market is expected to draw consumers.
For the nine-month period, net income attributable to Avon declined 89% to $12.7 million, compared with $119.7 million in the year-ago period. Total revenues declined 4% to $7.29 billion, from $7.61 billion in the prior-year period.
Looming for Avon is a settlement payment to the SEC over FPCA (Foreign Corrupt Practices Act) bribery charges in China. An offer of $12 million by Avon has been rejected, as the SEC seeks to impose a higher fine. Executives declined further comment.