Restructuring saves the day for Avon

The company reported that sales fell to $2.8bn, compared to $3bn in the corresponding quarter ending 31 December, 2007. For the full financial year revenues grew 8 percent to a record $10.7bn.

Avon said the lower sales were mainly attributable to a shift in many foreign currency exchange rates during the quarter, offsetting local currency growth rates of 2 percent as sales in developing markets continued to drive the results.

Sales in Latin America were down 5 per cent during the quarter, offsetting local currency growth of 11 percent, whereas sales were down 11 per cent in North America – 9 percent in local currency.

Sales in CEE countries disappoint​

In Central & Eastern Europe, the fourth quarter sales were heavily impacted by currency exchange, down by 14 percent, and down 3 percent in local currencies.

Sales in Western Europe, Middle East & Africa were 16 percent lower, offset by a 2 percent revenue growth, whereas in the Asia-Pacific region, revenues for the quarter fell by 6 percent against a flat performance for local currencies.

Net income increased to $232.4m, up from $128.9m in the same period last year, which the company said was mainly due to significantly lower costs derived from its restructuring program.

Net income rockets​

For the full year net income was up 65 percent, from $530.7m in 2007 to $875.3m for the full financial year 2008.

As a result of this fourth quarter savings operating profit grew by 66 percent to $372m, while for the full year it was up 53 percent to $1.3bn.

Although the company managed to turn a profit during the fourth quarter, the results were still below analysts' expectations as the weakness of foreign currencies and the consumer slump bit harder than expected.

Depressed economy hurts sales​

“After nine months of strong sales performance, the significant negative impact of foreign exchange and the depressed economy hurt our fourth-quarter revenue performance,”​ said Avon CEO Andrea Jung.

“It is prudent to assume these pressures will continue for the foreseeable future, and we therefore anticipate that 2009 will be a challenging year.”​

The direct sales company said that active representation – the number of people out selling its products – rose 4 percent for the fourth quarter and 7 percent for the year as a whole.

Advertising spend falls​

Conversely, in line with the company’s cost cutting measures, advertising decreased in the fourth quarter to $100m, whereas for 2008 as a whole it fell by 6 percent to $391m.

Relating to costs, the company said that it expects to achieve annual savings of approximately $430m once all the initiatives in the restructuring program have been fully initiated.

This compares favorably against total costs incurred of $530m since the program was initiated in 2005.