Avon Products Earnings: Look For The Turnaround Strategy

Direct-selling beauty products company, Avon Products, (NYSE:AVP) will announce its Q3 results on 30th October. The company’s position has weakened over the past half of the year with revenues decreasing 6% and millions spent on an ongoing SEC investigations into alleged overseas bribery. Andrea Jung, executive chairman and board member, widely held accountable for the missteps by the company, will step down from her position on December 31st and let Chief Executive Sherilyn McCoy try and fix the struggling company. We would be looking for Avon’s turnaround strategy after weak performance in the first half of the year in the earnings call.

Avon sells its products to the end-consumer through direct-selling with $11 billion in annual revenue and has an active global sales force of almost 6 million sales representatives and has presence in about 100 countries. Its business model separates it from peers such as L’Oreal (PINK:LRLCY), Procter & Gamble (NYSE:PG), Estee Lauder(NYSE:EL) and Revlon (NYSE:REV).

View our detailed analysis for Avon’s stock here

Avon’s new CEO, Sherilyn McCoy, said during the Q2 earnings call that she is reassessing the company’s long-term business strategy, and her priority is to stabilize the business and arrest the declines in sales, number of orders and active sales force. She hopes to attain that by re-targeting the product mix and updating the product portfolio. Besides hints about the progress on re-targeting exercise, we’ll also look for the company’s strategy to increase the earning potential for its representatives, which has been declining and is responsible for the dropping number of representatives. The number of representatives has dropped 2% y-o-y worldwide and 12% y-o-y in North America during the first six months .

The company is unlikely to see any margin recovery in the current year due to weak sales coupled with high commodity and labor costs as well as increased expenses in the Representative Value Proposition (RVP) in the U.S. which have not had the expected return on investments so far. The company is working on digital social media initiatives and sales tools to empower its representatives. These initiatives are in addition to its e-commerce strategy and we’d be looking for more details on it.

We have a $18 Trefis price estimate for Avon which is 5% above the current market price.