On her 100th day as Avon’s CEO, Sherilyn McCoy was peppered with analyst questions about a turnaround plan she shared with the release of another disappointing financial report. In the second quarter Avon’s sales fell 9% or 1% in constant dollars, with a 3% drop in representatives globally. Sheri outlined a multiple point approach focused on stabilizing the business by fixing existing issues, rather than setting a new course. Here’s how Sheri addressed specific analyst concerns.
* Taking a patchwork approach, rather than adopting a formal strategy for the company, raised the most doubts. “Given the challenges, you said Avon doesn’t need a new strategy?” questioned a dubious Chris Ferrara of Bank of America. While Wendy Nicholson of Citigroup suggested the company go outside for insight. “How do you know you don’t need a new strategy? Are you taking the word of the people inside the company?” Nicholson queried. Sheri answered: “The challenges we are facing did not evolve overnight, and solutions will take time as well. There is no single issue, and there will be no single solution. We know we can fix this.” But in the short term, “we need to focus on stabilization and a turnaround.”
*Several analysts questioned a program to increase the number of value priced products in Avon’s portfolio, concerned it would undermine a representative’s earning potential. Sheri, along with Avon chief financial officer, Kimberly Ross, countered that offering bargain items brings excitement and draws more customers into the brochure, who then can be traded up to higher priced skin care and fashion items. “We need to have the right products in the right market at the right price,” explained Sheri. “And we need to have multiple tiers.”
*Meanwhile, with unexpectedly high sales declines in some countries, and outsized spending support keeping others afloat, analysts wondered if Avon would be closing markets. China, where sales dropped 21% in the quarter, was singled out. Connie Maneaty of BMO Capital also questioned if the U.S., “was ever going to be a major contributor to cash flow?” (Avon’s North America sales declined 6% and rep count fell 12%). Sheri indicated there are no immediate plans to exit markets, and instead sees “opportunity” to be more competitive and also in making sure spending “is driving top line growth.” However, she acknowledged, “If we feel we are not able to compete … there are no sacred cows.”