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Avon announces cuts in effort to return profitability

8 Apr 2013, 17:35
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Avon announces cuts in effort to return profitability

Avon shares dipped 0.2 percent to $20.21 in early Monday trade.

 

Avon, the world's largest direct seller of cosmetics, is already showing signs of stabilizing its business under new CEO Sheri McCoy, who was brought in a year ago, following years of inconsistent sales in Brazil and Russia and dwindling business in China and the United States.

 

The company, known for products such as Skin So Soft, in December set an annual cost savings target of $400 million by the end of 2015 and said it would exit South Korea and Vietnam. The moves announced Monday are part of those initiatives.

 

In February, Avon reported surprisingly strong fourth-quarter earnings after reversing sales declines in top markets like Brazil and Russia and selling more products globally.

 

McCoy said at an investor conference later that month in her most expansive comments about the restructuring plan that she had no qualms about exiting unprofitable markets to focus on emerging markets. She said a key priority is to reverse a long sales slide in the United State.

 

The CEO also wants operating profit margin to hit the low teens in percentage terms by 2016. In 2012, it had fallen to 2.9 percent of sales from 9.9 percent two years earlier.

 

"While considerable work remains to be done to improve operating margin, we believe Avon can return to a low double-digit margin," Stifel analyst Mark Astrachan said.

 

Staff will be cut across all regions and functions and will include the restructuring or closing of smaller, underperforming markets, primarily in Europe, the Middle East and Africa, Avon said on Monday.

 

The cuts, which will be completed by the end of the year, are expected to generate $45 million to $50 million in annual savings.

 

Total charges are expected to range from $35 million to $40 million, with about $20 million coming in the first quarter of 2013, the company said.

 

Avon had 39,100 employees as of December 31, 2012, and more than six million active sales representatives.

 

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