What To Watch For In Avon’s Q4 2016 Earnings

by Trefis Team
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Avon is slated to release its Q4 2016 earnings on February 16th. The 130-year old company finally started its recovery last year, after being on a downhill journey post 2011. Avon’s sell-off of its North American business and receiving a $650 million funding, and subsequently undertaking a few major restructuring plans last year, seem to be finally helping it in its revival once more. Currently, the company has a strength of 8 million active representatives that makes it the world’s largest direct selling workforce. Avon’s current focus on its top ten markets and its top 40 brands has been working wonders to revive its growth. Along with this, Avon is also bringing in more effective leadership to help it with its growth as one of the global beauty leaders. It appointed Jamie Wilson as its Executive Vice President and Chief Financial Officer, effective January 1, 2017. Avon’s erstwhile Chief Financial Officer and Chief Operating Officer, James Scully, will continue in his position of the Chief Operating Officer and will carry on leading Avon’s transformation plans. The company has also shifted its head office from New York to the U.K. from the beginning of this year.

Avon’s Current Focus Areas To Revive Growth

Avon’s strategic initiatives and growth plans post the capital investment has helped with the company’s progress. In January, Avon presented at the ICR 2017 and mentioned these as some of its key focus areas.

  • Geographic And Brand Focus

The company is concentrating on its top ten markets for most of its growth. The markets are: Brazil, Mexico, Russia, Philippines, the UK, Argentina, Colombia, Turkey, Poland, and South Africa. Avon is the Number 1 direct selling beauty company in all these markets, except Brazil where it is Number 2. These markets are at present growing for Avon at a faster rate than the entire company’s growth. The company is also focusing on better representative engagements in its top markets. Along with its markets, Avon has also decided to focus on around 40 of its top brands that contribute to ~80% of its growth. It is segregating its brands under three tiers: Upper Mass, Mass, and Value.

  • Short Term And Long Term Financial Goals

Over the next three years, the company plans on driving out cost, improving financial resilience, and investing in growth. Its long term financial goals include: mid-single digit constant dollar revenue growth, 1% to 2% representative growth, and low double-digit adjusted operating margin.

  • Digital Focus

Given the importance of digital progress and social media in a brand’s reach and popularity among its clientele (especially the younger ones), Avon has started focusing on its digital and ecommerce initiatives as well. Currently, its social media presence has  increased by over 25% y-o-y  with it having the third largest fan following among beauty brands (~20 million) on Facebook, over 280 million YouTube video views, and over 1.9 million Instagram followers. Along with increasing its investments on advertisement, the company is also shifting most of its campaigns to the digital platform.

Possible Reasons Behind Choosing Its New CFO

Avon is looking toward building a newer brand image where the company carries on its strategic initiatives such as cost saving and efficiency, along with connecting better with the millennial customers and active representatives. The selection of its new CFO might have been a strategic one that will help Avon progress faster on this path. Prior to Avon, Mr. Wilson held the position of CFO at SABMiller, a global brewing and beverage company, from 2011 to 2015. The company experienced a 50% increase in its stock price during that period along with a double digit growth in profit per annum. He was  a key figure to transform SABMiller from a regional autonomous player to a globally connected entity. He also played a major role in SABMiller’s acquisition of the $11.5 billion worth Fosters business. Mr. Wilson might play a pivotal role in Avon’s turnaround story, as well.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Avon Products

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