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Avon expects North America to turn profitable in 2015
February 12, 2015 / 12:21 PM / in 3 years

Avon expects North America to turn profitable in 2015

(Reuters) - Avon Products Inc (AVP.N) said it expects its North American business to turn profitable for the first time in three years, allaying some investor concerns after the company reported a bigger quarterly loss due to weakness in Brazil, its largest market.

Avon’s shares were up 5.6 percent at $9.06 by midday, reversing their earlier losses. The stock has lost 40 percent of its value in the past year.

The company has struggled to bring in new representatives in North America, while demand has remained lackluster in Brazil, the world’s biggest direct-selling beauty market.

Avon, which has celebrities such as Fergie and Megan Fox as partners, said on Thursday it planned to cut costs.

The company also said it would focus more on retaining its representatives - the so-called “Avon Ladies” who sell its beauty products directly to shoppers - in North America this year.

“The North American management team is taking aggressive actions to fix the business,” Chief Executive Sheri McCoy said on a call, noting that selling, general and administrative costs fell by $178 million in the region for the year.

But Sanford Bernstein analyst Ali Dibadj said the company would have to spend more to grow revenue sustainably in the United States.

“It is always possible to become profitable quickly by underspending in North America,” Dibadj told Reuters. “I have a hard time believing they can grow in the U.S. again sustainably without significantly more spending.”

BRAZIL TROUBLES

A stronger dollar also hurt quarterly revenue, particularly from Latin American countries, which account for about half of the company’s total sales. Sales in Brazil fell 7 percent.

Avon has been struggling to boost sales in Brazil, where household spending has stagnated over the past year as the economy ground to a halt.

The company split its Latin American operations between two executives last November. But analysts have said the move has failed to improve sales.

Still, McCoy was optimistic about Brazil.

“We continue to invest in Brazil as we see a bright long-term future despite shorter-term challenges,” she said.

Avon said it recorded a non-cash charge of about $405 million in the fourth quarter, related to a stronger dollar.

Excluding items, the company earned 20 cents per share from continuing operations, below average analyst estimate of 25 cents, according Thomson Reuters I/B/E/S.

Total revenue fell 12.2 percent, in line with expectations.

Editing by Saumyadeb Chakrabarty

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