Avon Revenue Down 2% in 1st Quarter 2012

Avon Products, Inc. reported first-quarter 2012 results. Kimberly Ross, Avons Executive Vice President and Chief Financial Officer said: "While our first-quarter operating performance remained challenged, we are making progress toward addressing some of our operational and cost-cutting opportunities. With Sheri McCoy now on board, we are confident that her broad leadership experience and skills in managing large, complex, global organizations will help drive Avons future success. We look forward to communicating further with investors about our future growth strategy at the appropriate time."

Total revenue of USD 2.6 billion decreased 2%, up 1% in constant dollars. Total units declined by 1% and price/mix increased 2% during the quarter. Active Representatives were down 2%. On a category basis, Beauty sales declined 1%, up 2% in constant dollars. On a reported basis, color was flat, fragrance and skincare declined 1%, and personal care was down 2%. Constant-dollar Beauty was driven by growth in all categories; color was up 4%, fragrance increased 3%, skincare grew 2%, and personal care was up 1%. First-quarter 2012 gross margin was 60.8%, 310 basis points lower than the prior-year quarter, primarily due to cost pressures, including commodities and higher labor costs, as well as the negative impact from both foreign exchange and product mix.

First-Quarter 2012 Regional Highlights (compared with first-quarter 2011)

First-quarter constant-dollar revenue was driven by growth in both average order and Active Representatives.

Brazil was down 4%, or up 2% in constant dollars, driven by growth in Active Representatives. Brazils sales of Beauty products were flat with prior year, but increased 6% in constant dollars. This was partially offset by lower average order, due to uncompetitive pricing in Fashion & Home, as well as continued lower-than-normal service levels. Brazil sales were also negatively impacted by increased competition.

Strong momentum continued in Mexico, which was up 2%, or up 10% in constant dollars, driven by higher average order as well as an increase in Active Representatives.

Venezuela grew 26% in both reported and constant dollars, as average order benefited from inflationary price increases.

The decline in adjusted non-GAAP operating margin was due to lower gross margin throughout the region, driven by inflationary cost pressures and negative foreign exchange. Operating margin was also negatively impacted by higher wage inflation in Brazil, Argentina, and Venezuela, as well as continued investment in RVP in Brazil.

Avons core U.S. business (which excludes Silpada) was down 2%, as average order growth, which benefited from product portfolio enhancements of Smart Value and giftables, was offset by a decline in Active Representatives.
Silpada sales declined 17% due to declines in both Active Representatives and average order. The decline in adjusted non-GAAP operating margin was due to lower gross margin, driven by product mix and cost pressures, as well as costs related to the One Simple Sales Model implementation.

First-quarter constant-dollar revenue was flat, as higher average order was offset by a decline in Active Representatives.

Russia was down 1%, or up 1% in constant dollars, due to an increase in Active Representatives.

The decline in adjusted non-GAAP operating margin was primarily due to lower gross margin, driven by cost pressures, and increased investment in brochures

First-quarter constant-dollar revenue growth reflects higher average order, which was partially offset by a decline in Active Representatives.

U.K. and Continental Europe were down, partially reflecting a continued weak macroeconomic environment.

Adjusted non-GAAP operating margin was negatively impacted by 6.7 points due to increased bad debt provisions in South Africa, and lower gross margin, primarily due to foreign exchange