Avon Products Inc.’s stock plummeted on Thursday after the company reported a 7 percent sales decline for 2016.
Avon’s stock dropped more than 18 percent in Thursday trading, closing at $4.77.
For the full year, Avon’s revenue was $5.7 billion, down 7 percent. Diluted losses per share were 25 cents. Avon’s number of active representatives dipped 1 percent, primarily because of a decline in the Asia-Pacific region that was partially offset by increases in Europe, the Middle East and Africa.
“We’ve known that Avon’s turnaround wouldn’t be linear, but this quarter’s results are still unsettling,” wrote Barclays analyst Lauren Lieberman in a note. “Though Avon did sound more cautious on many of its key markets at ICR last month, we surely were not braced for a revenue and profit miss of this magnitude and breadth.”
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“Overall, the [fourth quarter] result was quite disappointing, indicating the difficulty of achieving consistent improvement in a direct-selling model broadly which affords more limited visibility,” wrote Stifel analyst Mark Astrachan.
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For the fourth quarter, net sales were down 2 percent to $1.6 billion. Diluted losses per share were 3 cents.
The company’s numbers were affected by the spin-off of its North America division to Cerberus Capital Management, a deal that closed in March 2016. The company said it had a $14 million loss from discontinued operations, about 3 cents a diluted share.
For the year, beauty sales were down. In skin care, Avon posted a 7 percent decline to $1.6 billion from $1.7 billion; in fragrance, the company’s sales dipped 6 percent to $1.5 billion from $1.6 billion, and in color, sales dropped 7 percent to $997 million from $1.07 billion.
The EMEA region posted $2.1 billion in sales for the year, down 4 percent; South Latin America also posted $2.1 billion in sales, down 7 percent; North Latin America brought in $829.9 million in sales, an 8 percent decline, and Asia-Pacific posted $556 million in sales, an 11 percent drop.
Avon chief executive officer Sheri McCoy said that the company continued to gain market share in Brazil, Avon’s largest market, and that the company “grew [its] upper mass brands at a faster rate than [its] overall business” — in line with the company’s previously stated goals. McCoy added that the company expects “solid performance” from Brazil in 2017.
Mexico, Avon’s second-largest market, is working to improve representative retention, but saw strong sales of Avon True, Skin Collagen and Avon Care, McCoy said.
In Russia, the company’s third-largest market, Avon suffered because of pricing from its fashion and home divisions that were “out of sync” with the broader market, McCoy said, indicating that competitors in Russia lowered prices.
Avon noted that while numbers are down, progress has been made with its restructuring plan, termed a Transformation Plan, which was unveiled in January 2016. The company is aiming to invest in growth, improve its cost structure and “improve financial resilience.” In its first year, Avon reduced debt by $260 million, beating its $250 million goal, and extended its maturity profile.
“Our transformation plan is well under way and was a key enabler of our 2016 financial performance,” said Avon chief executive officer Sheri McCoy on the company’s earnings call. “We delivered $120 million in cost savings in 2016, above our target for the year, we also significantly strengthened our balance sheet.”
One analyst on the company’s call — Ali Dibadj of Alliance Bernstein — expressed concern that Avon’s level of investment in the business may not be enough for the company to deliver consistent results. In response, new chief financial officer Jamie Wilson, who started in January, said that he didn’t “accept” the company would “have to spend a ton more” and that certain skills Avon is trying to improve couldn’t necessarily be fixed overnight or with a bigger investment.
“A lot of it can be time rather than just lots of money being thrown at the problem,” Wilson said. “You’ve got to look at these things and give them time to take traction.”