Key Takeaways And Trends From Avon’s Q1 Results

by Trefis Team
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Avon (NYSE: AVP) reported its Q1 2018 earnings, where its Total Revenue increased 5% to $1.4 billion as compared to the same period last year, due to the impact of adopting the new revenue recognition standard required by generally accepted accounting principles in the United States (“GAAP”). Avon’s bottom line remained dampened in Q1 as it experienced continued variability with challenges in key markets, particularly Brazil, where it was facing bad debt, challenges with representative retention, as well as stiff competition from other players. Active Representatives and Ending Representatives declined 4% and 1%, respectively, largely due to declines in Brazil and Mexico. Looking ahead in Q2 and remaining 2018, Avon plans to make progress in a number of key areas including delivering competitive representative experience, rigorous performance management, insightful data & analytics, and a relentless focus on execution capabilities.

Also with the recent inductions made in 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 Q1

Avon’s performance across different regions was a mixed-bag in the first quarter. Its revenues rose by 12% y-o-y to $568.4 million in Europe, Middle East & Africa (EMEA), however was flat in South Latin America at $497.1 million.  In North Latin America revenues was up by 1% at $195.6 million, while the Asia-Pacific division’s revenue declined 2% to $111.4 million. A similar trend was observed in the company’s Ending Representative figures across geographies. Ending Representatives declined 1% primarily due to declines in South Latin America and North Latin America that were partially offset by growth in Europe, Middle East & Africa.

Avon’s focus areas : The below factors will likely be key to the company’s performance in Q2 2018 and beyond:

  • 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 future 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 an 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 by 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.

 

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