Shares of Avon Products, Inc. (AVP - Free Report) rallied 13.9% in after-hours trading on Sep 17. Per sources, the stock gained on rumors related to its potential takeover by Natura & Co — the leading Brazilian manufacturer and direct-seller of beauty and personal care products. However, Natura denies rumors of any such buyout talks with Avon. Earlier, the company had received “expressions of interest” from other parties.
Nevertheless, the London-based cosmetics maker remains focused returning back to its growth trajectory.
Analysts believe Natura’s direct-sales business is complementary to Avon’s direct-selling operations. In fact, the buyer is still integrating its business with the $1.1-billion acquisition of Body Shop. Internationally, Avon’s focus on boosting growth is expected to help Natura expand its footprint.
In the past six months, shares of Avon have plunged 28.2%, wider than the industry’s 7.1% decline. The underperformance can be attributed to this Zacks Rank #4 (Sell) company’s dismal surprise trend.
We note that Avon has long been witnessing soft Representatives growth, which is hurting the company’s top line. Apparently, it has missed sales estimates in six out of the trailing eight quarters, including the second quarter of 2018. Also, its bottom line lagged estimates in nine of the preceding 12 quarters.
In the second quarter, the top line was impacted by lower Active Representatives, mainly in Brazil, Russia and Mexico along with challenges in key markets, particularly in Brazil. Active and Ending Representatives declined 4% each. Further, negative impact due to the trucker strike in Brazil hurt sales.
Avon has been aggressively trying to boost Representatives growth, which is a key factor behind the success of its direct-selling business. Recently, management highlighted the key milestones in the transformation of its service supply chain, including digital advancements, leadership appointments as well as operational updates.
Globally, the company has made significant developments in servicing its Representatives by improving delivery and services besides satisfying those, and increasing retention levels. It utilized exclusive software for real-time sales planning for its Representatives. The updated technologies permit higher adaptability to demand volatility, thus predicting Representative and customer demand and synchronizing its ability to fulfill their demands by right-sizing inventory and boosting delivery capabilities. Avon's technologies also focus on a significant reduction in delays, higher process efficiency, optimization of resource allocation and continuous Representative engagement.
Notably, the latest Machine Learning Model has been rolled out in three of the company’s top 10 markets, following impressive pilots in the U.K., Russia and Mexico. It remains on track for further rollouts in its top 15 markets by early next year, starting with Brazil in November 2018. Management intends to utilize this technology to accomplish a complete automated campaign planning process over the long term.
Looking ahead, management expects modest improvement in revenue trends in the second half of 2018.
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