Natura brand resumes growth in Brazil and further improvement in Avon fundamentals in Q1

Group’s performance was impacted by the continued Avon transformation, challenging global environment and tough comparable base

SÃO PAULO, May 5, 2022 /PRNewswire/ — Natura &Co’s (NYSE – NTCO; B3 – NTCO3) first-quarter performance reflects the challenging environment in which it is operating, but the Group recorded positive signs including a resumption of growth at Natura in Brazil and further improvement in Avon’s fundamentals, while Aesop continued its strong growth.

Natura &Co posted consolidated net revenue of R$8.3 billion, down 4.6% at constant currency and 12.7% in BRL in the first quarter, and adjusted EBITDA margin was 7.2% (-300 bps) on the back of a very strong comparable base, as Q1 of last year saw sales growth of 8.1% at constant currency and 25.8% in BRL. Net income was R$ (643.1) million and the Group ended the quarter with a solid net cash position of R$ 4.5 billion.

The Q1-22 performance was notably impacted by rising inflation affecting discretionary spend in key markets, cost pressures in the supply chain, unfavorable currency movements and first effects of the war in Ukraine. But it also reflects strategic decisions by Natura &Co related to Avon’s transformation, including a reduction in the product portfolio and the implementation of the new commercial model, with first indicators already showing improvements.

The ramp-up of digitally-enabled sales continued, reaching 50.8% of total revenue, compared to 47.7% in Q1-21 and to 35.0% pre-pandemic (Q1-20), driven by continued growth at Natura and Avon. Digitally-enabled sales include online sales (e-commerce + social selling) and relationship selling using digital apps. At Avon International, adoption of the Avon On app has posted consistent and sustained growth over the last 9 quarters, reaching 16%, or 5 times pre-pandemic levels. At Natura in Latam, the average number of consultants sharing content also increased by nearly 5 times compared to pre-pandemic levels and orders through the 1.5 million+ consultant online stores increased by 81% in the region and were three times their Q1-20 levels.

The global macroeconomic and geopolitical environment has been volatile, marked by rising inflationary pressures, supply chain disruption, currency volatility and the outbreak of the war in Ukraine, all impacting consumer spending and demand.  Despite this volatility, the company is reaffirming its 2024 EBITDA margin guidance of 14% to 16%. The company now expects to achieve its consolidated net revenue target of R$47 billion to R$49 billion and net debt-to-EBITDA target of less than 1.0x in 2024, from 2023 currently, thus aligning all its guidance on the fiscal year ending December 31, 2024.

Roberto Marques, Executive Chairman and Group CEO, declared: “While our Q1 performance was impacted by rising inflation, cost pressures in the supply chain, unfavourable currency movements, and the first effects of the war in Ukraine, they also reflect The Body Shop channel rebalancing and weak consumer demand in Europe, as well as key strategic decisions related to Avon’s transformation, including a reduction in the product portfolio and the implementation of the new commercial model.

This combination resulted in lower sales and profitability in the quarter compared to Q1-21, partly reflecting our greater exposure to Latin America and Europe, while most of our global peers are more exposed to Asia and North America. But we also saw some positive signs, including the resumption of growth by Natura in Brazil, an improvement in Avon’s underlying performance with productivity gains, and another quarter of strong growth by Aesop.

We expect the environment to remain challenging in Q2 and will continue to take measures including further cost containment and strict financial discipline on investments in order to protect our profitability and cash generation. We also expect in the second half of the year to see further gains from Avon’s transformation, with continued improvement in its fundamentals and leading indicators, in addition to a more favorable comparable base for the group. The company is reaffirming its EBITDA margin target in 2024 despite the outbreak of the war in Ukraine and the recent deterioration in the macroeconomic and geopolitical environment, which are impacting consumer spending and demand.  However, in light of these effects, the Company now expects to achieve its consolidated net revenue and leverage targets in 2024, from 2023 previously.”

Performance by business unit:

Natura &Co Latam’s net revenue decreased by 2.1% in constant currency (-8.4% in BRL) in Q1.  The Natura brand posted 5.3% growth in Latin America at constant currency (-1.9% in BRL) in the quarter. Growth resumed in Brazil (+3.2% at constant currency and +3.1% in BRL) and the Natura brand made significant market share in the quarter. Natura’s sales were also up 8.0% in constant currency in Hispanic Latam markets (-8.7% in BRL), with growth across all markets, notably Argentina and Colombia. The Avon brand’s revenue was down 11.1% at constant currency (-16.3% in BRL). In Brazil, net revenue improved sequentially since Q3-21 but was still down -17.0% in Q1-22, with beauty sales declining by a more limited 9.7%.  In Hispanic markets, net revenue was down 7.9% in constant currency (-16.0% in BRL). The new commercial model is showing significant progress in Ecuador, with activity and productivity growth in nearly all campaigns in Q1 vs. last year, as well in Central America, with a sequential increase in activity and higher recruitment. Adjusted EBITDA margin for Natura &Co Latam was 9.0% (-320 basis points) in Q1.

Avon International’s net revenue decreased 10.1% at constant currency (-22.1% in BRL) in Q1. Performance was mainly impacted by the war in Ukraine, lower disposable income in Europe from rising inflation and fewer representatives, reflecting a higher comparable base last year when the channel benefited from lockdown, as well as intentional optimization linked to the implementation of the new commercial model. Avon’s business fundamentals continued to improve, with an increase of +9.1% in productivity and stable activity (excluding Russia and Ukraine). Q1 adjusted EBITDA margin stood at 4.4%, +30 bps vs Q1-21, a major achievement, supported by strict financial discipline and structural savings from the simplification of the operating model.

The Body Shop’s net revenue was down 16.0% at constant currency (-22.9% in BRL) in Q1, mainly reflecting lower disposable income in Europe and an expected channel rebalancing, with retail’s recovery offset by a drop in TBS At Home and e-commerce after outperforming during lockdowns. Q1 adjusted EBITDA margin was 6.4%, -830 bps vs Q1-21, mainly due to the absence of one-off pandemic-related government support that boosted last year, channel mix rebalancing and sales deleverage from deceleration in key markets. EBITDA margin is expected to recover in H2.

Aesop posted another excellent quarter, with net revenue increasing by 21.3% at constant currency (+9.6% in BRL). All markets delivered double-digit growth, led by North America and Asia-Pacific. Aesop consistently posted superior sales growth relative to global luxury brands. Q1 adjusted EBITDA margin was 21.7%, -500 bps compared to Q1-21, mainly due to planned higher investments in digital, categories and geographies to drive future sustainable growth.

About Natura &Co
Natura &Co is a global, purpose-driven, multi-channel and multi-brand cosmetics group which includes Avon, Natura, The Body Shop and Aesop. Natura &Co posted net revenues of R$40.1 billion in 2021. The four companies that form the group are committed to generating positive economic, social and environmental impact. For 130 years Avon has stood for women: providing innovative, quality beauty products which are primarily sold to women, through women. Founded in 1969, Natura is a Brazilian multinational in the cosmetics and personal care segment, leader in direct sales. Founded in 1976 in Brighton, England, by Anita Roddick, The Body Shop is a global beauty brand that seeks to make a positive difference in the world. The Australian beauty brand Aesop was established in 1987 with a quest to create a range of superlative products for skin, hair and the body.

Natura brand resumes growth in Brazil and further improvement in Avon fundamentals in Q1 WeeklyReviewer

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