Key Takeaways from Avon’s Q4 Earnings

Avon (NYSE: AVP) reported its Q4 2017 earnings, where its top line was approximately unchanged at $1.6 billion compared to same period last year. In constant dollar terms, however, it fell 2% y-o-y. Avon’s bottom line remained dampened in Q4 due to problems in Brazil, where it continues facing bad debt, challenges with representative retention, as well as stiff competition from other players.  Avon’s active representatives declined by 2% y-o-y mainly due to the  decreases in the Latin America region. On the bright side, the Company realized more than $250 million cost savings under its Transformation Plan, which was initiated in 2016, exceeding its cost savings target of $230 million for 2017. The company also actually beat on the bottom line, reporting $.12 v. the estimate of $.07, which had not happened in six quarters. Looking ahead in 2018, Avon plans to make progress in a number of key areas including delivering competitive representative experience, rigorous performance management, insightful data & analytics, and relentless focus on execution capabilities.

Also with the recent inductions made in the Avon’s top management the company is positive that the new changes will steer Avon towards the path of growth. Please refer to our dashboard analysis on Avon.

Segment-wise performance in Q4

Avon’s performance across different regions was a mixed-bag in the fourth quarter. Its revenues rose by 3% y-o-y to $641.6 million in Europe, Middle East & Africa (EMEA), however fell by 2% y-o-y in South Latin America to $575.4 million.  In North Latin America revenues were flat at $204.8 million, while Asia-Pacific division’s revenue declined 3% to $139.3 million. A similar trend was observed in the company’s Ending Representative figures across geographies. While Ending Representatives rose in EMEA, they either remained flat or declined in other geographies.

Avon’s focus areas : The below factors will likely be key to the company’s performance in 2018

• Relentless focus on execution capabilities  –  Avon is channelizing its investments towards upgradation of its systems that will help the representatives in their roles of selling its products. Brazil witnessed an upgraded system towards the beginning of 2017 and similar projects are being run in other countries including China, Russia, and Poland.
• Insightful data & analytics – The company is gathering analytical data on each representative’s business in order to understand their functioning at a more detailed level. Further, Avon’s grouping of its representatives as top sellers, sellers, and new Representatives, will likely motivate better performance as representatives aim to gain the title of top sellers.
• Rigorous performance management –  Following the stepping down of its CEO in early 2018, Avon has hired a new CEO and executive members. This fresh induction of talent is expected to steer the company towards the path of better growth.
• Competitive representative experience – Avon is focusing on improving the end-to-end of its business model starting from forecasting customer demand, planning of operations, distributions, and shipment to representatives.
• Digital Initiatives – The company is also focusing on digital and e-commerce initiatives. Avon’s social media presence has increased with it having the third largest fan following among beauty brands. Along with increasing investments on advertisement, the company is shifting many of its campaigns to the digital platform. In our view, this will positively impact its performance as increasing number of customers are buying beauty products online.

Outlook for fiscal 2018

Avon is expecting that it would be able to grow its top line in fiscal 2018 executing significant operational improvements despite continued competitive pressures. The company also plans on continuing to realize cost savings to improve financial resilience and to be able to invest in its growth. Its long term financial goal is mid-single digit constant dollar revenue growth and low double-digit adjusted operating margin.