Is the Strong Dollar Killing the Turnaround at Avon?

On a GAAP basis the company posted a net loss of $0.33 per share. Foreign exchange rates related to Venezuelan operations and a write-down of Venezuelan assets had a negative impact of $196 million on operating profit; restructuring costs weighed by $33 million; and Avon took a non-cash $31 million tax charge.

Avon said it continues to expect constant-dollar revenues to be up “modestly” compared with 2014 revenues. However the negative impact on revenues from currency exchange rates has been raised from a prior estimate of 12% to a new forecast of 17%. Constant-dollar adjusted operating margin is now forecast at 50 basis points lower than in 2014. Avon now expects adjusted operating margin in reported dollars to be down approximately 200 basis points as compared with 2014, due to the expected impact from foreign currency translation and a new tax on cosmetics in Brazil.

About the only good news from Avon this morning is that it plans to continue paying its quarterly dividend of $0.06 per share (a dividend yield of 2.7%).

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CEO Sheri McCoy, who took over in April 2012, said:

Overall, the first quarter was in line with our expectations despite currency pressures that were greater than anticipated. … Despite continued foreign exchange pressure, I’m really impressed with how well our teams in market are managing in this volatile environment. This is a payoff for the work we’ve done over the past two years on strengthening our talent and improving core processes.

Revenue in North America was down 17% in constant dollars, but the damage came in Latin America, where Brazilian revenues fell 17%. On a constant dollar basis, Avon’s sales rose 1% year over year in the quarter. If that’s a turnaround, it is moving in super-slow motion.

Avon’s shares traded down about 0.6% in Thursday’s premarket to $8.62, in the stock’s 52-week range of $7.10 to $15.46. The consensus target price for the shares was around $9.60 before the report.