The current earnings season, which has unfolded over the past several weeks, has revealed a large scale makeover at a number of beauty companies. Revlon Inc., Avon Products Inc. and the Procter & Gamble Co., for instance, are working to transform their businesses in the wake of changing portfolios and management teams.
Both Avon and P&G reported a decline in beauty sales, but the companies are showing improving trends, according to Stifel analyst, Mark Astrachan.
Meanwhile, L’Orèal continues to zero in on the makeup category. Less than one week before the French beauty firm released its second quarter earnings, L’Orèal once again expanded its portfolio with a $1.2 billion deal to acquire IT Cosmetics. L’Orèal reported sales of 6.34 billion euros, or $7.13 billion, in the quarter ended June 30. Revenues in the period declined 0.6 percent on a reported basis and gained 4.3 percent in constant currency.
Meanwhile, large-scale change continues at Revlon.
The company’s newly installed President and Chief Executive Officer Fabian Garcia presided over the firm’s second quarter earnings call, during which he spoke about Revlon’s plans to acquire Elizabeth Arden Inc. The deal is expected to close by the end of 2016. Fabian, who joined Revlon in April from Colgate-Palmolive, said, “The combined company would enable us to enter or expand into faster growing categories, channels and territories, making us a more diversified and stronger global player.”
Revlon’s second quarter net sales gained 1.3 percent — or 3.5 percent excluding foreign currency— to $488.9 million to for the three-month period ended June 30.
At P&G, fourth quarter sales decreased 3 percent to $16.1 billion, hampered by foreign currency impact, Venezuela and minor brand divestitures. Organic sales gained 2 percent.
P&G’s beauty sales declined 5 percent to $2.75 billion.
“The fourth quarter was another period of progress driving P&G’s results to a balance of strong top-line growth, bottom-line growth and cash generation,” said Chairman, President and CEO David Taylor. “We grew organic volume and sales in all reporting segments. We increased investments in innovation and advertising, funded by strong productivity improvement. Looking forward, we’re committed to continued productivity improvement and cost savings that provide the fuel for innovation and investments needed to accelerate and sustain faster top-line growth. We expect fiscal 2017 to mark another significant step toward our goal of balanced growth and value creation and total shareholder return in the top third of our competitive peer group.”
Turning to the beauty category, David said both Pantene and Head & Shoulders delivered solid organic sales growth in the U.S. for the second consecutive year. Herbal Essences, however, was a drag on hair care, down mid-teens for the fiscal year. In skin care, P&G completed “a significant streamlining” of Olay’s stockkeeping units and will take a similar approach in China, the brand’s second biggest market, where it will cut the number of counters for Olay, focusing on retaining the top-selling counters.
The company said it expects 2 percent organic sales growth in fiscal 2017. Stifel analyst Astrachan wrote in a research note, “We are hopeful company expectations are conservative and reflective of increased flexibility to reinvest a considerable portion of productivity initiatives in advertising, sampling, and R&D to drive the anticipated improvement in organic sales growth relative to [fiscal] 2016, or 2 percent growth versus 1 percent in [fiscal] 2016.”
At Avon, the direct seller posted a second quarter profit of $33 million, or 6 cents a diluted share, compared with $28.8 million, or 7 cents a share in the year ago period.
Avon’s total revenue decreased 8 percent to $1.43 billion compared to the year-ago quarter. In constant dollars, revenue gained 4 percent. In constant dollars and excluding the impact and sale of Liz Earle, revenue gained 5 percent.
“Our second quarter results came in slightly above our expectations, driven by operating performance that was better than anticipated. We also saw some modest easing in foreign currency pressure. Importantly, our performance improvements were broad-base with nine of our top 10 markets growing in local currency,” said Avon CEO Sheri McCoy. “We continue to make steady progress on a number of fronts: improving pricing discipline; driving additional cost out of the business; and continuing to build our brand and enhance the representative experience.”
Meanwhile, New Avon LLC — the North American business, which became a private company in March 2016 and is majority owned by Cerberus Capital Management, held its annual representative convention in Las Vegas earlier this month. Newly installed CEO Scott White delivered the keynote speech to crowd of roughly 5,000 attendees, declaring, “We invite the world to meet a very New Avon. We are a $1 billion, 130-year-old start-up and are embarking on a new beginning. We are committed to investing in our representatives and their businesses, and driving Avon’s strength and leadership in this powerful direct selling channel.”
Shiseido also reported first half sales this month. For the six-month period ended June 30, the company’s net sales gained 0.4 percent to 412.28 billion yen, or $3.69 billion.
The company reported higher sales across all business, excluding fragrance, impacted by the exit of the Jean Paul Gaultier business. In the Americas, Shiseido saw growth in prestige brands such as Shiseido, Clè de Peau Beautè and NARS. As a results, sales in the Americas rose 1.7 percent compared with the prior period.
Coty Inc. will release its fourth quarter results on Aug. 16, followed by the Estèe Lauder Companies Inc., which is slated to report fourth quarter results on Aug. 19.