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Falling sales in China hurts Avon Q3 results

By Simon Pitman , 06-Nov-2012
Last updated the 05-Nov-2012 at 15:27 GMT

Avon continues to battle through difficult times, with its most recent results significantly impacted by falling sales in the China market, as the company restructures its business model there.

Sales in the Asia Pacific region fell by 8 percent to $215.7m, a figure that was significantly impacted by a slower performance in the huge China market, where the company continues to see its market share decline.

The company reported that revenues in the China market were down 31 percent, both in reported and constant dollar rates, reflecting a significant re-think on the company's business model in the country.

After much deliberation, Avon's China executives have decided that the business will be more effective if it follows a retail model, as opposed to the direct sales model it pursues in all its other markets.

Most other markets in the region report stagnant or declining sales, except The Philippines, where revenues grew by 6 percent during the quarter, up 4 percent in constant dollars.

Sales impacted by currency translation and restructuring charges

Sales for the quarter were down 8 percent to $2.6bn, which represented an increase of 1 percent in constant dollar terms, mainly  reflecting unfavorable foreign currency translations.

Net profits were down from $164.2m in the corresponding period last year, to $31.6m, a figure that reflected the slower sales, together with increased expenses resulting from the company's comprehensive restructuring program.

The company is targeting significant operational cost savings and an enhanced personnel structure in an effort to put the company on a more profitable track and speed up the recovery in its performance.

CEO concedes the results are 'disappointing'

"Avon's third-quarter results remain disappointing.  The challenges that Avon faces developed over time, not overnight, and it will take time to implement the solutions as well," said Sheri McCoy, Chief Executive Officer.

"However, we have identified the first critical actions to return Avon to a position of financial health and improve our competitive position.  With a clear focus on growing the top-line, managing costs, and improving our working capital, I am confident that we are moving Avon toward a steady recovery."

The results showes that beauty sales were down 9 percent, fragrance was down 11 percent and personal care down 9 percent, with constant dollar sales mostly flat, expect fragrance which fell by 3 percent.

All other regions see declining sales

Sales were down by 6 percent in the biggest region, Latin America, to $1.27bn, mainly impacted by a 19 percent fall in the Brazil market, counterbalanced by a 1 percent increase in sales in Mexico and a 6 percent growth in Venezuela.

In Europe, Middle East and Africa, sales were down 11 percent to $620.7m, a figure that was positively impacted by a VAT (tax) settlement in the UK, from the previous year. Otherwise revenues were down 9 percent in Russia, 25 percent in the UK and 9 percent in Turkey.

In North America sales were down 8 percent to $443.6m, a figure that was mainly attributed to a significant drop in the number of active representatives.

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