Avon Products, Inc (AVP – Free Report) has been out of investors’ favor for quite some time now. The company’s persistent dismal performance can be attributed to weak Active Representatives. Reflecting the struggles of this beauty products retailer, recent records reveal that it has missed earnings and sales estimates for four consecutive quarters now.
Evidently, shares of this Zacks Rank #5 (Strong Sell) company have plunged 62.8% in the past year, significantly wider than the industry’s decline of 7.7%. On the contrary, the broader Consumer Staples sector which is placed at the top 31% (5 out of 16) of the Zacks classified industries, gained 2.8%.
What’s Troubling the Stock?
Avon has been struggling with waning Active Representatives. In the last reported quarter, Active Representatives and Ending Representatives declined across all segments, barring Ending Representatives growth in North Latin America. Active Representatives declined 3% on a year-over-year basis, while Ending Representatives dipped 2% in second-quarter 2017. In fact, results in the quarter were also impacted by strong comparisons with the prior-year quarter.
Further, operating margins were hampered by constant-dollar revenue decline resulting in deleveraged fixed expenses; higher bad debt expense, particularly in Brazil; increased Representative, sales leader and field expenses; elevated transportation costs, mainly in Russia and investments in advertising for product launches. Consequently, management anticipates constant-dollar revenue growth for 2017 to be at the low end of its previous guidance of low-single digits growth.
Meanwhile, Avon is facing macroeconomic headwinds like intense competition from various products and product lines, in both domestic and international markets. All these factors are likely to weigh upon Avon’s performance and dent overall profitability.
Can Avon’s Transformation Plan Revive Its Performance?
The company’s progress on Transformation Plan, which is on track to deliver cost savings goals of $230 million for 2017, is noteworthy.
