Avon may not be able to keep its door shut after all.
Avon shares dropped 8 percent on the news, losing $1.73 to close at $19.87. That’s well short of Coty’s $23.25-a-share offer and ratchets up the pressure on Avon’s board and new CEO Sheri McCoy, a former Johnson & Johnson exec.
“Stabilizing the business is my first and most urgent objective,” said McCoy, who last week replaced longtime CEO Andrea Jung, who stepped down amid an overseas bribery probe and persistently poor results.
Avon “has lost market share and missed expectations,” McCoy told analysts yesterday. “It has had problems executing. It has faced operational and strategic issues.”
While Avon’s business may not need a complete makeover, McCoy said it’s got problems worldwide. While US drugstore chains continue to push aggressively into cosmetics, skin creams and fragrances, competitors in Eastern Europe are slashing prices.
In Brazil, Avon got bruised last year when glitches in its computer systems botched orders from its sales force. The company is running out of wiggle room there, McCoy said. Competition is increasing, and Avon needs more “Brazilian-centric” products and advertising, she said.
Likewise, a more crowded market has made it more difficult to keep talented sales reps, driving up salaries even as rising commodity costs cut into Avon’s bottom line.
Keeping Avon reps “motivated and well compensated” will be a top priority, McCoy said.
In the first quarter, Avon eked out modest sales gains in Brazil and Russia as it added more reps. In North America, however, revenue dropped 4 percent as the company’s sales force shrank by 10 percent.
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