Strong performance of Natura Brand in
Brazil combined with solid margin
results from the Wave 2-implemented countries led to YoY
profitability evolution and more than offset Avon International's
margin contraction amid sales deleverage
SÃO PAULO, May 14, 2024
/PRNewswire/ -- Natura &Co's (B3: NTCO3) first quarter 2024
financial results (Q1-24), released today, showed increased
profitability driven by solid results from Natura &Co
Latam, which is benefiting from the integration of Natura and Avon
in the region (referred to as 'Wave 2'), coupled with richer
country and brand mix. This more than offset the margin contraction
at Avon International amid sales deleveraging. Natura &Co's
consolidated net revenue reached BRL 6.1
billion in Q1-24, up 1.1% vs Q1-23 in constant
currency (CC) and down 5.7% year-on-year (YoY) in Brazilian Reais
(BRL).
At Natura &Co Latam, Q1-24 revenues grew 3.1% YoY in CC.
Natura Brazil was again the
highlight, reporting an 11.3% YoY increase in Q1-24 revenues,
attesting strong momentum despite the tough comparative base from
Q1-23 when the brand had achieved a 25% YoY growth rate in the
region. This performance includes retail sales which showed robust
growth in the country, fueled by solid same-store sales and a still
strong pace of store openings. The brand opened 132 stores in the
last twelve months (13 own and 113 franchised), reaching a total
network of 896 stores (115 own and 781 franchised). The results
were also boosted by the successful launch of a fragrance sales
campaign called "Perfumada", which contributed to a richer product
mix.
This strong result in Natura
Brazil was offset by Avon Latam, which is still delivering
soft top-line, with revenues down 11.3% in Brazil and 11.8% in Hispanic Latam, as a
result of the impacts in the regions where Wave 2 was already
implemented, including a smaller number of representatives in the
base. Worth noting that Avon Brazil already showed improving
top-line trends throughout the quarter.
Avon International had a slow start in Q1 in terms of revenue,
down by 4.7% YoY in CC. Despite a decrease in revenue, primarily
attributed to challenges in the direct selling channel, Avon showed
resilience in other areas. Efforts to strengthen Gross Margin and
streamline operations led to only a slight decrease in Adjusted
EBITDA margin of -60 bps YoY (ex TBS) despite sales deleverage. The
company is also actively exploring opportunities from other
distribution channels, including retailers. Avon is already being
sold in the UK via Superdrug, in Italy via Naima stores and in Turkey via representative's retail franchise
stores.
Improved consolidated profitability is principally attributed to
the expansion of gross margin that reached 65.2% in Q1-24, up 90
bps vs. Q1-23 driven by the strong gross margin expansion from
Latam (+170 bps). Adjusted EBITDA reached BRL 683 million, and adjusted EBITDA margin
expanded 110 bps YoY.
Q1-24 reported net loss was BRL 935
million, compared to a net loss of BRL 652 million in Q1-23, impacted by
discontinued operations, higher taxes from country mix and FX
losses and hyperinflation accounting impacts. The Underlying Net
Income, which is net income excluding transformation costs,
restructuring costs, discontinued operations and PPA effects, was
BRL 116 million (vs. a loss of
BRL 373 million in Q1-23 or
BRL 260 million excluding TBS and
Aesop). Excluding the one-off of BRL 137
million of losses related to transferring cash out from
Argentina, Underlying Net Income
would be a profit of BRL 21 million
in the quarter.
Fabio Barbosa, Group CEO of
Natura &Co, commented: "We are encouraged that the first
quarter of the year showed positive recurring results with a
consolidated margin expansion of 110 bps vs previous year, driven
by solid results from Natura &Co Latam, benefiting from the
Natura and Avon integration in the region, coupled with richer
country and brand mix. This more than offset the margin contraction
at Avon International amid sales deleveraging. From a cash
conversion perspective, seasonal cash consumption also improved on
a YoY basis to BRL-1.0 billion
(excluding one-off discontinued operations tax payments), compared
to a pro-forma (excluding TBS) of BRL -1.4
billion in the same period last year or BRL -1.8 billion reported in Q1-23.
The ongoing roll-out of Wave 2 is a pivotal step in our
transformational process, and although we have experienced expected
and unexpected challenges in its implementation, we continue to see
sustainable improvements in key metrics such as productivity, cross
selling, and better portfolio mix, resulting in gross margin
improvement in all countries where Wave 2 was implemented. In
Brazil, Avon still experienced headwinds impacting the top-line,
but with an improving trend month over month, and we expect Avon's
top-line to stabilize in the second half of the year. We also saw
significant margin expansion in Peru and Colombia as Wave 2 results start to impact the
P&L in full while investments in channel and other one-offs
start to fade away.
As expected, our integration initiative is driving improved
savings in both G&A and selling expenses, although the latter
is being offset by higher marketing investments and other
initiatives focused on improving service levels. The solid start to
the year gives us confidence that the initiatives we are
implementing are beginning to deliver the expected results and we
are extremely confident with the potential of the integration of
both brands in Latam.
Avon International had a slow start of the year, following a
solid Q4 2023 profitability performance. The new management team
took office in January and is working on simplifying the market,
focusing on key countries, and enhancing our portfolio with
superior promotional execution. We believe these steps are crucial
to stabilize revenues and keep us on track to improve
profitability.
We are also continuing to study a possible separation of Avon
and Natura, as we announced in February, in line with our goal of
simplifying our corporate structure and giving more autonomy to the
business units. We will inform the market as soon as we have news
on this subject.
Lastly, but certainly not least, our hearts go out to all those
affected by the devastating floods in the Rio Grande do Sul region
of Brazil. We are closely monitoring the situation and extending
our support to our vast network of nearly 100,000 people in the
area, including Beauty Consultants, colleagues and partners.
Through telemedicine and our Social Center, we are providing
critical medical, social and psychological support. In addition,
Natura &Co Latam will replenish lost inventory, forgive debts,
defer payments for affected consultants and franchisees, and has
designated two spaces as donation hubs for several companies to
facilitate logistics. All these initiatives already exceed the
amount of BRL 10 million.
With the aim of engaging our network to continue supporting
those most affected, we have launched a matching funds initiative
to help consultants most affected by the floods to rebuild their
homes. For every real donated, Natura commits to matching it with
another real. We expect to reach one million reais by May 30th."
The full earning report and financial statements can be accessed
at https://ri.naturaeco.com/en/.
About Natura &Co
Natura &Co is a global purpose-driven group
uniting Natura and Avon brands. We connect more than 200
million clients worldwide, engaging them through 7 million
dedicated Consultants and Representatives, 900 stores and
franchises, and 22,000 employees.
We believe in promoting real positive economic, social, and
environmental impact. We believe that the world does not need
another big company. The world needs symbols of change capable of
blazing new trails and inspiring others to follow. We believe in
the power of cooperation, co-creation, and collaboration for a
better way of living and doing business.
We are Natura &Co.
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SOURCE Natura &Co