Direct cosmetics seller Avon Products Inc. (AVP, Financial) has been facing a hard time in the past three years. It has posted continued declining sales and profits as its cosmetics business continues to lose its luster among its customers. In the cosmetics field, where competition from fellow rivals is on a surge, the company seems to be planning a brisk restructuring program to reduce its continued struggle to a certain extent. One plan of action that is being highlighted by news sources is the sale of its North American assets. However, as the company remains mum at this moment, nothing is very clear from the management’s end. But analysts are speculating a sale or a takeover as the financial state of Avon is currently in an entire mess. Let’s quickly find out what latest news is being shared with respect to Avon’s future plans. Those plans added some rejuvenation to its stock, which had lost 44% of its value in the past 12 months, before moving up on April 14 soon after the Wall Street Journal reported such a strategic move.
The plan of action, while in doldrums
Avon has been operational since 1886 and operates in mainly three product categories- beauty, fashion and home. Geographically it operates in five regions which include Latin America, North America, Central and Eastern Europe, Western Europe, Middle East and Africa and the Asia Pacific. The company has been struggling to pull up its top line which has shown 13 consecutive quarterly declines; also it has posted mounting losses for the past 13 quarters in a row.
The stock has shown quick erosion and has already shown a decline close to 8% so far in 2015. In such a scenario, a Wall Street Journal report noted on April 14 that Avon is exploring strategic alternatives that could include reorganization of its operations or selling off assets or operations. The report also stated the possibility of Avon selling off its North American assets which contributed nearly 14% of its total revenue in 2014.
The North American operations have been struggling for the past three years and have been continually posting losses every quarter. Avon’s struggle to improve its operations in the U.S., and in its largest market Brazil does not seem to be working to date, and that is eminent from the financial losses it has been booking through the past few years. Hence, selling off such non-performing assets might help in bringing a turnaround for Avon. However, company officials have not commented yet on their plan of action.
The past dismal quarter says it all
In February this year, Avon announced its final quarter results for the fiscal year 2014 which was dismal with revenue for the quarter down by 12% year over year to $2.3 billion. Sales in the beauty segment went for a loss, and the segment reported a straight decline of 14% year over year. The company posted a net annual loss of $-388.6 million, most of which was attributed to the loss in the fourth quarter, compared to the annual loss of $-56.4 million reported for the full year of 2013.
The North American operations performed at its worst in the fourth quarter of 2014 and sales were down 12%, compared to the same quarter of 2013. For the entire past fiscal year, the North American sales were down 17% compared to the fiscal year 2013.
Hence, selling of such assets could be termed as a strategic move by the company which is currently under financial distress. However, the company which presently has a market capitalization of $4.1 billion declined to comment on its future plans.
Concluding thoughts
Though the company has not shared any update with regard to its reorganizational or sell-off plans, one thing is for sure –Â the company is trying out alternatives to turn around the struggling beauty products segment which has been witnessing sales decline in the past three years. And a potential sale of North American assets could be likely as being estimated by several analysts, since the unit has been struggling from the past few years. Hopefully in the investor meeting that has been postponed from May 13 recently by Avon’s management, the potential sale of the North American assets would get discussed in length. So, let’s stay tuned for further updates on Avon’s restructuring strategies going forward.
