As the year-end approaches, the rising stars of 2012 of the Big-6 (world’s six largest public direct selling companies) seem to crystallize. Let’s take a brief look at how they have been doing so far.
Avon certainly is not among those rising stars. There are still no signs of a turnaround that has been waited for a long time by all the stakeholders.
“Avon’s third-quarter results remain disappointing,” said Sheri McCoy, Avon CEO while commenting on the results. Moreover, Avon CEO expects further patience by saying, “I recognize you would like to hear me present a magic bullet or a quick fix. But our business is complex. As I’ve said in our earlier calls, the challenges Avon is facing developed over time, not overnight, and the solutions will take time as well. We still have a tremendous amount of work to do to address issues that Avon has wrestled with for years.”
Avon closed Q3 with an 8% decrease in sales and the first nine months of 2012 with a “minus” 6.4%. Among the markets where Avon suffered the most were China (-31%), U.K. (-25%), Brazil (-19%), South Africa (-14%), and Russia (-9%). Beauty business in North America’s contribution was a negative 6% and Silpada’s performance was -25%.
The best piece of news seems to be coming from the Turkish market as Avon after about more than a year now, posted a positive growth figure for the first time: 9%. Avon describes this as “a sharp reversal” but remains cautious to draw any conclusions in Turkey based on this quarter only. The reason to this is that Avon accepts it invested significantly to obtain this growth in Turkey.
As a result of the not-so-favorable trend, Avon’s net income for the nine-month period is down 76% ($122.9 million in 2012 vs. $517.5 million in 2011).
Management is now targeting cost savings of at least $400 million by the end of the next three years “to be largely driven by a reduction in selling, general and administrative expenses (SG&A)”. How they plan to cut selling expenses and at the same time, to provide better compensation to the field as they had announced before, is unknown to us for now.
Avon declares its goal as “to achieve mid-single-digit revenue growth and a low-double-digit operating margin over the next 3 years.”
Herbalife showed, once again, a top notch performance in the third quarter, closing the period with a 14% increase in sales worldwide, as compared to the same period last year.
Although this is really an outstanding performance, we should note here that Herbalife’s growth is in fact, in a declining trend: It was 21% and 17% in Q1 and Q2, respectively. Herbalife guidance for 2013 is also between 10-12% sales growth showing a slowing trend but still an enviable growth rate for many.
One of Herbalife’s strength is that the global growth comes from all regions, protecting the company from being dependent on any specific region. You can see the overall picture showing the “volume points growth” on the chart to the left. That said, we must underline that Herbalife succeeded to achieve a 15% revenue growth in North America, a region that is almost unanimously accepted as a “mature” market. And Herbalife’s North American performance is not something that suddenly happened in Q3; the company managed to increase its sales by 21% in the first nine months here!
These successful results have also been reflected on the profitability of the company: Herbalife’s net income has increased by 17% in the first three quarters as compared to last year.
CEO Michael O. Johnson shows the so-called “nutrition clubs and the daily consumption method as the driving forces: “The fundamental change in our business began 10 years ago with the development of Nutrition Clubs in Mexico. This increased our addressable audience by making our products more affordable to more consumers. Over the last several years, a substantial portion of our growth has come from our distributors around the world moving to daily consumption business methods, built on the creation of lifelong customers consuming Herbalife product everyday. We believe that these business methods now generate approximately 40% of our volume. With approximately 43,000 nonresidential clubs at the end of the third quarter, Herbalife products are now more accessible to more customers than ever before. ”
Michael O. Johnson reiterated their target of “10 billion volume points by 2020” which translates approximately to $8.5 billion. He says: “Our aspirational goal of 10 billion volume points by 2020 is now a number we believe we can achieve”
To support this growth, recently, Herbalife’s Board approved the creation of a manufacturing facility in the U.S. on the East Coast that will have approximately four times the capacity of its Lake Forest facility. The company anticipates this facility will start production in 2014.
Natura of Brazil is another company that achieved a double-digit growth in Q3: 14.8%, to be more precise. The company’s 9-month performance is 14% as well, showing no signs of slowing down.
So far Natura has been ultra reluctant in expanding into new markets (or, has not really felt the need, due to a lucrative Brazilian
market, from another perspective). Although still representing a small percentage of the volume, non-Brazilian markets seem to contribute more and more each year: The international operations accounted for 12.3% of the net revenue in Q3 of 2012 which was the highest contribution ever. To remind, Natura operates in six countries besides, Brazil: Argentina, Chile, Peru, Columbia, Mexico and France.
Natura summarizes its strategy as:“Focused on growth in Brazil, accompanied by an increase in consultant productivity; on accelerated and profitable growth in our international operations; and, in the medium term, on significant improvement in the experience of our consumers and consultants through a digital network that will promote more personal relationships.”
For detailed information on Natura’s Q3 results, please click “Natura-Q3”.
Looking at the sales growth, Nu Skin is absolutely brightest star of the last quarter. Nu Skin’s sales increased by 23% in Q3 over the prior-year period. “By continuing to execute on our business strategy, we were able to generate another record quarter, putting us on track to reach a milestone of more than $2 billion in annual revenue in 2012,” said Truman Hunt, Nu Skin CEO. The company’s growth impacted its operating profit by 23% on a quarterly basis.
Besides this phenomenal growth, Nu Skin is not without vulnerabilities as its growth is still very much dependent on Korea, Japan and China. These represented more than 60% of Nu Skin’s volume during the last quarter.
Looking ahead, it is important to note here that Nu Skin announced it had plans to enter the weight management category in 2013, taking on companies such as Weight Watchers International Inc .This will happen in the second half of next year and “It will surpass anything that we’ve done to date, “ CFO Ritch Wood commented on this.
It seems 2012 will be another year of disappointment in sales growth for Oriflame after 2011. Oriflame’s sales decreased by 4% last quarter. With this, company’s nine-month performance is slightly below 2011’s same period. Closing sales force is down 9%. Sales weakened during the latter part of the quarter.
CIS & Baltics that is Oriflame’s strongest region continues to be problem. Sales decreased in Q3 of 2012 following decreases in the first two quarters. The loss in quarterly sales in this region has now reached 32% since end of 2011 (€ 229 m in Q4/2011 vs. € 155 m in Q3/2011). To remind, this region is so important to Oriflame as it represents more than half of Oriflame’s global volume.
Thanks mainly to reduction in cost of sales, company’s operating profit was not negatively impacted from this trend in sales. Gross margin improvement “was primarily driven by supply chain efficiencies, lower inventory write-offs and favourable currency movements.” In fact, company’s operating profit is 8% above as compared to first nine months of 2011.
CEO Magnus Brannstrom comments: “The sales development in the third quarter was below our expectations, affected by continuously challenging market conditions in many key markets as well as a lower sales force. On the positive side we continue to see good development of margins and operating cash flow, which reflects our commitment to strengthen the current brand positioning and improving the profitability.”
Looking at the general chart above, once can easily see that in reality, Orirlame has not been in a strong growth era during the last four years (from end-2008 to end-2012)
For detailed information on Oriflame’s Q3 results, please click “Oriflame-Q3”.
Tupperware’s revenue was down 1% in Q3 and down 2% in the nine-month period.
CEO Rick Goings said, “Looking forward to 2013, our initial full year U.S. dollar and local currency sales guidance is for an increase in the 5 to 7% range. Our longer-term sales increase guidance range continues to be 6 – 8% in local currency, with the 2013 range being 1 point lower reflecting current trends, where we are with the implementation of changes in our challenged markets and the external environment.”
Tupperware continued to achieve favorable results in the emerging markets. Indonesia for example, is Tupperware’s largest operation in the world and it succeeded to grow 30% in Q3. Turkey was also among the countries Tupperware has been successful lately. In fact, the operation in Turkey continues to outgrow many others: It posted 30% growth in Q3, on top of a 20% in Q2.
Tupperware announces it will continue to focus on four keys to continue growing: 1) Innovative products, 2) The right kind of selling methods, 3) A compelling sales force opportunity and 4) Real direct selling fundamentals.
With these, its expectation is a full-year 2012 local currency sales increase of 5%. In the long term, three to five year outlook is still to grow local currency sales at 6% to 8% per year from 2014 on.