This week and the next one, we will take a look at six largest public direct sellers’ profitability performances. This two-part review will focus on last three years’ figures to be able to give a better comparative picture. The first part will cover Avon, Herbalife and Brazil’s cosmetics giant, Natura.
Avon
The numbers shown here for Avon do not include its North America business that was sold to Cerberus Capital at the end of 2015. And as Avon did not report its 2013 figures without this unit, we don’t have them in this review.
The table shows a decline in both of Avon’s operating and net income in 2015. Again, this was despite the fact that company’s worse-performing North America unit was excluded.
The graph to the right shows how big a headache North America had been for Avon. 
You can see the sales in North America has fallen by more than half between the 2007-2014 period.
In operating profit terms, both in 2014 and 2015, Avon’s EMEA region was the most profitable of all three. Other regions are Asia-Pacific and Latin America.
While commenting on profits, CEO Sheri McCoy said, “Our operating margin continues to suffer, primarily due to FX… the FX pressure we faced over the course of the year was extreme… which had nearly a $0.5 billion impact on adjusted operating profit in 2015 alone.”
The company announced it expected the profit comparisons still to be weak in the first half of 2016 due mainly to the “significant” foreign currency deterioration.
As it has been very recently declared, Avon is now cutting 2,500 positions worldwide and is moving its headquarters from New York to London, UK. This move was a part of company’s Three-Year Transformation Plan. The investors have reacted quite positively to Avon management’s moves lately. Avon shares’ price has been in an upward trend since the beginning of 2016.
Herbalife
In company CEO Michael O. Johnson’s words,”2014 was a record year in terms of net sales, volume and sales leader retention.” However, the situation was not as bright on the profit side. Operating profit went down to 10% from 15%, and net income to 6% from 10% as compared to previous year. The main reasons to this decline in profits were the increases in company’s a) Selling, General and Administrative Expenses (by 6 points) and b) Interest Expense (by 1 point).
Herbalife explains the increase in Selling, General and Administrative Expenses with “$103.4 million and $98.0 million pre-tax unfavorable impact related to the remeasurement of Venezuela Bolivar-denominated assets and liabilities at the SICAD I and SICAD II rate, respectively, and $7.0 million loss on Venezuela asset impairment.”
Herbalife managed to increase its profits in 2015, despite a 10% decline in net sales. Still, company’s profitability was worse than what it was in 2013.
At the end of 2014, the price of Herbalife shares was at $38. Shares closed the year of 2015 at $54 with over 40% gain in one year.
Natura
Natura’s profitability has been in a downward trend as it can be seen from the figures. This is an interesting situation as the company has been enjoying a healthy sales increase in the same period.
From 2013 to 2014, Natura increased both its operating expenses and interest expenses at a rate higher than its sales increase. We see the same trend from 2014 to 2015, too. As a result, profit is down both in absolute terms and as a percentage of sales.
One last important observation from Natura’s figures is on its sales composition. We know Brazil is still company’s major revenue-generator. However, the graph on the right shows the fact that growth has stopped and turned to negative in Brazil and growth is now coming from Natura’s international markets. International markets account for 29% of company revenue as of end-2015. This was 19% at the end of the previous year. This situation is important as Brazil market’s profitability is higher than international markets.
Next week, we will be covering another group of three giants that are publicly owned: Nu Skin, Oriflame and Tupperware.