Avon Products Inc.’s AVP first-quarter 2015 adjusted earnings of 4 cents per share from continuing operations fell short of the Zacks Consensus Estimate of 7 cents and also declined 66.7% from 12 cents posted in the year-ago quarter. The company’s bottom-line results were mainly impacted by foreign currency transaction costs and translation adjustments.
Further, on a reported basis, the company posted a loss of 33 cents per share from continuing operations compared with a loss of 38 cents in the year-ago comparable quarter.
Total revenue for the quarter declined 18% year over year to $1,794.2 million from $2,183.6 million. However, the top line surpassed the Zacks Consensus Estimate of $1,834 million. On a constant currency basis, total revenue improved 1% year over year on the back of strength in Europe, Middle East & Africa.
During the quarter, the global beauty company registered an increase of 3% in price/mix driven by higher prices in regions with high inflation, while total units fell 2% owing to decline in North America.
Active Representatives inched down 1% year over year during the quarter but reflected a sequential growth from the previous quarters. The decline in Active Representatives was mainly due to North America, offset by growth in numerous markets, with the most significant one being Russia. Average orders were up 2% in the quarter, gaining from higher prices in markets experiencing high inflation, mainly Venezuela and Argentina.
Avon registered declines of 17% and 19% in its Beauty Products and Fashion & Home segment revenues, respectively. On a constant dollar basis, sales at both Beauty Products and Fashion & Home rose 3%.
Adjusted gross margin of this Zacks Rank #4 (Sell) company contracted 10 basis points (bps) year over year to 61.4% on account of negative currency effects, offset by lower supply chain expenses.
Adjusted operating margin fell 40 basis points (bps) to 5.7%, mainly driven by foreign currency headwinds coupled with higher advertising expenses for new product launches, offset by gains from the company’s ongoing cost saving initiatives.
Regional Performance
In the quarter, Avon’s revenues in Latin America fell 22% year over year to $836.8 million, while it rose 3% on a constant-dollar basis owing an increase in average orders due to inflationary impact on pricing, offset by a reduction in Active Representatives. Units sold were down 3%, price/mix rose 6% and Active Representatives slipped 2%.
In North America, sales skidded 18% year over year to $242.1 million, mainly due to a fall in Active Representatives. On a constant dollar basis too, revenues were down 17%. Units sold for the region dropped 25% year over year, while Active Representatives slipped 17%.
Avon’s revenues of $550.7 million in Europe, the Middle East and Africa fell 16% year over year. However, on a currency neutral basis, revenues increased 9%, mainly driven by 8% increase in Active Representatives, on account of strength in Russia. Average orders in the region were up 1% while units sold grew 9%.
The Asia-Pacific division’s revenue fell 1% to $164.6 million. Conversely, constant dollar revenues increased 2%, mainly due to higher average orders, particularly in Philippines. The region marked a 2% decline in both Active Representatives and units sold, while both average order and price/mix increased 4%.
Other Financial Details
Avon exited the first quarter with cash and cash equivalents of $668.9 million, long-term debt (excluding current maturities) of $2,208.2 million and shareholders’ equity of $12.7 million.
Moreover, in conjunction with the earnings release, the company announced a quarterly dividend of 6 cents, payable on Jun 1, 2015, to shareholders of record as on May 14.
2015 Outlook
For 2015, the company projects a modest improvement in revenues on a constant-dollar basis compared with 2014. However, based on the recent foreign currency spot rates, management now expects 2015 total revenue to bear negative impact of nearly 17 percentage points from foreign currency translation.
Additionally, the company now anticipates constant dollar adjusted operating income for the year to decline 50 basis points year over year due to the introduction of a new Industrial Production Tax (‘IPI’) law on cosmetics in Brazil, effective May 1.
Apart from this, the company expects the previously expected significant impact of foreign currency transaction costs and translation adjustments on operating income to mount up. Hence, the company now expects adjusted operating income, in dollar terms, to decline 200 basis points year over year, bearing the impact of both negative currency translations and IPI.
Stocks to Consider
A stock to consider in the same industry is Inter Parfums Inc. IPAR with a Zacks Rank #2 (Buy). Other stocks worth considering in the broader retail sector include Citi Trends Inc. CTRN and American Eagle Outfitters Inc. AEO, both carrying a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment