Avon’s 2015

avon.logoWhen Avon’s sales started its decline in 2012, probably many thought the situation was transient and the company would achieve a come-back soon. That did not happen, though, due to the fact that problems were quite deep inside.

As you will see on the below two graphs, Avon’s sales growth peaked in 2011 to decline afterwards. However, its profitability had started stumbling two years before that in 2009.


It seems CEO Sheri McCoy was more optimistic when she took over in February 2012. One year later, she would say “…driving improvement has been more challenging and has taken longer than I had anticipated,” during an earnings call with the investors.

In fact, the consequences of all mistakes that were previously made surfaced under the the new CEO Sheri McCoy’s leadership. In 2012 Avon’s global sales declined for the first time in quite some time. It was down 5%. The situation with company’s profitability was much worse. The yearly decline in operating profits was more than 50% (from $1092m in 2011 to $525m in 2012). And again, for the first time in many years, Avon posted a net loss instead of a net profit. 2012 was an important year for Avon from one other aspect, too. At the end of that year, the crown changed hands and Amway became the largest direct selling company, overthrowing Avon.

In February 2013, Avon’s top management gave a presentation at Consumer Analyst Group of New York Conference (CAGNY). There, Sheri McCoy summarized Avon’s situation as:

• Underperforming for years

• Eroded financial health

• Disappointed stakeholders

Avon’s decline continued in 2013. Sales was below $10b for the first time since 2008. Avon exited several small, underperforming markets in 2013. The same year Avon sold Silpada for $85m, about one-seventh the amount it paid to buy the company in 2010. Silpada’s sales at the time of purchase were about $230m a year, compared with $155m in 2012.

Last but not least, the infamous “bribery” issue contributed to Avon’s numbers, too. Avon, after spending at least $344m on an internal investigation of corrupt payments, would pay an additional $135m to settle U.S. criminal and civil claims. Avon had begun looking into allegations of improper payments in China in 2008, sparked by a whistle-blower’s letter to then-CEO Andrea Jung.

2014 was far from being satisfactory for Avon as well. Sales was down 12%. 2014 sales figure of $8.6 billion was only better than Avon’s revenue in 2005! Company’s operating profits was also down 6% hitting the worst figure in the last 16 years.

CEO Sheri McCoy said during the earnings call after closing the year, “As I acknowledged previously, the degree of difficulty has been greater than when we set the goals in late 2012, and we remain behind where we thought we would be, particularly in terms of revenue growth.”

So, 2015 marks the fourth year of new management at Avon. And Avon’s growth performance in the first quarter of 2015 was another disappointment. Sales was down 18% as compared to the same quarter of 2014 and the number of active representatives was down 1%, too.

As far as the regional sales performances are concerned, none of the regions were able to post a positive figure: Latin America’s was -22%, North America’s -18%, EMEA’s -16%, and Asia-Pacific’s -1%.

However, the situation was better on the profitability side in the first quarter: While the quarterly loss was $51 million in 2014, this was decreased to $38 million.

In the second three-month period in 2015, the decline continued. Although Avon’s constant Dollar sales was flat compared to last year, sales in current Dollar was once again,18% less than that of last year same quarter’s.

There was a decline in the number of active representatives (-2%) as well as in the number of total units sold (-4%).

Looking at regional performances, the worst came from Latin America (-17%). It was followed by EMEA (-16%), North America (-15%), and Asia-Pacific (-8%).

North America currently represents 14% of Avon’s global business. When commenting on this region, Sheri McCoy said, “The area that has been challenging for us, and you’ve heard me speak about this frequently in the past, is the area of representative engagement and we’re certainly not all the way to bright there.”

Avon’s operating profit in the last quarter was worse than last year’s, too.

In July 2015, Avon announced it would sell Liz Earle, a UK-based skin care brand for $215 million. The Company expects to make a gain on this sale of approximately $50 million after tax. Avon had acquired Liz Earle in 2010 and has since managed this brand as a separate business from its core direct-selling business. Liz Earle represented approximately 1% of the company’s consolidated revenue.

So, is there that light at the end of the tunnel for Avon? Maybe… but for now, it’s not a very strong one.

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