Beauty Industry

Avon Profit More Than Triples

Gains in markets such as Mexico and Turkey also helped to offset weakness in North America.

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By: Jamie Matusow

Editor-in-Chief

Avon Products Inc., the world’s largest direct seller of beauty products, saysits first-quarter profit more than tripled as demand rose across different product categories from fragrance to personal-care products.

Gains in markets such as Mexico and Turkey also helped to offset weakness in North America. The profit increase was the biggest in at least four years, according to FactSet Research data.

To boost profit, Chief Executive Andrea Jung has controlled costs by implementing a hiring freeze. The company also lowered advertising expenses by 15%, particularly in China, as she’s moving the country from a hybrid retail model to a direct-sales format.

Jung is also shifting more of the spending on initiatives that will help to boost morale and count of Avon’s more than 6 million sales representatives, who are traditionally known as Avon Lady and are the face of the brand and key to its future growth, analysts said. Active representative count declined 1% during the quarter.

For example, the company is changing compensation structure in markets such as Russia and giving its representatives in countries such as Brazil iPad as incentives, Jung said on a conference call with analysts. Sales in both countries, among the company’s key markets, have slowed in part as Brazil, for instance, was hurt by service issues including order delivery delays.

In North America, where sales and representative count declined, she’s stepping up promotions and fragrance and skin-care product launches. The company also introduced a “Believe in your success” incentive program to stem declines in sales leadership count.

Jung forecasts second-quarter sales excluding the currency translation to rise in the mid-single digit. While she sees commodity cost pressures increasing, she forecast Avon to still deliver a wider margin on a full year basis.

“We are making some early progress,” Jung says. “We remain focused on a lot of heavy lifting that’s required across the balance of the year to continue to return this business to sustainable, profitable growth.”

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