Fearing that the Chinese government's investigation of issues
related to the operating of an illegal pyramid scheme by Nu Skin
Enterprises may extend to other multi-level marketing companies
coupled with Avon's weak fourth quarter and full-year 2013
financial results, we have downgraded our long-term recommendation
on Avon to Underperform. Moreover, we remain concerned about
challenges to the company's growth in the past few quarters such as
a declining trend in representative growth, local currency sales
growth and unit growth, along with reduced margins in mature
markets like North America. Moreover, weakness in the emerging
markets, like China, as well as regulatory and cash flow issues
risking dividend are the other negatives. We are also concerned
over the lingering macroeconomic headwinds in Venezuela and
Argentina, which may negatively impact the company's financials.
Headquartered in New York City, Avon Products Inc. directly
sells cosmetics, fragrances, toiletries, jewelry, and accessories.
The company markets around the world through more than 6.0 million
independent sales representatives and is the world's largest direct
seller. The company's products are classified under the following
categories: Beauty, Beauty Plus, Beyond Beauty, and Health and
Wellness. Beauty products include cosmetics, fragrances, and
toiletries under the brand names of Avon Color, Anew, beComing,
Skin-So-Soft, and Advance Techniques Hair Care, among others.
Beauty Plus consists of jewelry, watches, apparel and accessories.
Beyond Beauty products include: home products, gifts and decorative
items. Health and Wellness products include vitamins, exercise
equipment and other related items.
The company provides its operational results under 4 reportable
segments Latin America Europe, the Middle East & Africa (EMEA)
North America and the Asia Pacific. During 2013, Latin America
accounted for 49% of total sales, EMEA 29%, North America 15%, and
the Asia-Pacific 7%.
Management is currently focused on expanding the direct selling
business in the emerging markets. The company's direct selling
model is a competitive advantage, particularly in the developing
markets as it allows the company to quickly penetrate the market
and even access remote communities without large capital
In Jul 2013, Avon sold the Silpada Designs jewelry business to
Rhinestone Holdings, Inc. for $85 million in an all-cash deal. The
primary reason for the divestiture was the timeline and investment
required by the business to return to historical levels of
profitability, which were difficult for the company to bear.
Avon Products Inc. (AVP): Read the Full Research
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