Avon Sheds Silpada Designs After Failed Silver Jewelry Foray
Avon Products (NYSE:AVP) completed its divestiture of its Silpada Designs business for $85 million, plus an additional $15 million to be received in 2015 if Silpada Designs achieves certain revenue targets over the next two years. The division was sold to Rhinestone Holdings, which is a newly formed entity owned by the original founders of Silpada Designs. Avon Products acquired Silpada Designs three years ago in July 2010 for $650 million. Avon Products is the world’s largest direct seller of beauty and cosmetic products with over 6.3 million active sales representatives. Silpada Designs is a North American designer and seller of silver jewelry. [1]
See Our Full Analysis for Avon Products
Silpada Designs’ Journey With Avon
- How Coty Benefits From Recent Divestment & Deleveraging Plans
- Synergies From The Avon-Natura Merger Could Unlock More Than $1 Billion In Value For Shareholders
- What Does The Avon-Natura Merger Deal Mean For Investors In Avon?
- A Closer Look At Avon’s Global Operations, And What’s In It For Natura
- Key Takeaways from Avon’s Q4 Earnings
- Will Representatives Growth Drive Avon’s Q4 Earnings?
Silpada Designs was acquired by Avon Products in July 2010 for $650 in cash and a contingent additional payment in 2015, based on achievement of certain earning milestones. Prior to consolidation with Avon Products, Silpada Designs had revenues of about $109 million and net income of $26 million during the first half of 2010. The company was acquired at a substantial premium considering the potential synergies that would accrue to Avon Products. Silpada Designs primary product, silver jewelry, also resulted in a diversification in the company’s sources of revenue. [2]
However, the sales of jewelry products never caught the fancy of Avon Products’ customers as the revenues from Silpada Designs business added little to sales in 2011 over 2010, while it nosedived 19% in 2012 over 2011. Silver prices doubled during the same period, which also impacted the demand for Silpada Designs’ products.
Along with contributing marginally to the company’s revenues, Silpada Designs turned out to be a drag on the company’s operating margins. The sluggish growth in sales resulted in the company lowering its growth projections. The overpriced acquisition and optimistic sales growth projections resulted in impairment charges of $263 million and $209 million in 2011 and 2012 respectively, negatively impacting the operating margins by about 2.4% and 2% in the respective years.
Impact Of The Divesture On Avon Products’ Earnings
Avon Products will record a pre-tax loss of $80 million in its third quarter earnings as a result of this divesture and plans to use the proceeds in paying its outstanding corporate debt. This will help the company in reducing its interest expense by about $1 million, ultimately helping its bottom line. Additionally, the company can focus on selling its core beauty products. Avon Products’ strategic decision in taking a longer term view of improving its top line and focusing on its core activities will help in improving its shareholder’s wealth. Continuous lack in demand for Silpada Designs’ products forced the company to look for strategic alternatives and it indeed took a right decision in selling the division, before it turned worthless.
Submit a Post at Trefis Powered by Data and Interactive Charts | Understand What Drives a Stock at Trefis
Notes:- Avon SEC Filings, July 2013 [↩]
- Company SEC Filings [↩]