Share price of Avon Products Inc. (AVP) has been witnessing a downtrend for about over a year. The company has lost its luster due to continuous loss of active representatives, declining volume, unfavorable foreign currency translations and reduced margins in mature markets like North America. Hence, the stock has tumbled nearly 54.4% year over year.
The aforementioned factors have led Avon to produce distressed sales results over the past few quarters, resulting in weak margins. Total revenue for third-quarter 2014 declined 8% year over year to $2,138.2 million and missed the Zacks Consensus Estimate of $2,151 million.
Adjusted gross margin of this Zacks Rank #4 (Sell) company contracted 110 basis points year over year to 62%, on account of negative currency translation effects primarily in Latin America and Europe, Middle East & Africa (EMEA) as well as higher supply chain expenses.
Additionally, over the last four years, Avon has witnessed a declining revenue trend in North America, especially in the U.S., mainly due to a decrease in active representatives, partly offset by large average order. Revenue from this region has declined considerably from about $2,293.4 million in 2009 to nearly $1,458.2 million in 2013. Moreover, revenues from this region have declined so far in fiscal 2014, reporting a 16% fall in the third quarter. The company’s management is concerned about the decline in revenues and has been constantly striving to stabilize the situation.
Further, weakness in the emerging markets as well as regulatory and cash flow issues risking dividend are the other negatives.
Avon remains affected by the currency devaluation in Venezuela. The Venezuelan government’s measure to combat the rising fiscal deficit and pressure on the Forex market comes at the cost of high inflationary situation in the country. As a result, players like Avon are finding it difficult to maintain profitability due to a rise in raw material prices along with the government’s restrictions on pricing decisions of companies.
This is in turn is impacting Avon’s results as the company generates approximately 5% of its total revenue and 14% of operating profit from the country. The company is facing a similar situation in Argentina.
Moreover, shares of this New York-based global beauty company hit a new 52-week low of $7.46 on Jan 16, before closing trade at $7.47.
Better-ranked stocks in the soaps-cosmetics industry include Helen of Troy Limited (HELE), with a Zacks Rank #1 (Strong Buy), and Elizabeth Arden Inc. (RDEN), carrying a Zacks Rank #2 (Buy). Another stock worth considering in the broader consumer staples sector is Boston Beer Inc. (SAM) holding a Zacks Rank #1.
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