With an annual sales of €1.2 billion (approx. $1.08 billion) Oriflame is the second largest European direct seller. The company was founded in 1967 in Sweden by Jonas and Robert af Jochnick brothers and Bengt Hellsten. Listed on the Stockholm Stock Exchange, Oriflame has been a public company since 2004. Today, Oriflame is a global beauty company with direct sales in more than 60 markets, with more than 6,000 employees and about 3 million consultants.
Following a strong growth until 2010, Oriflame’s sales and profitability started stumbling in 2011. During the five-year period that ended in 2011, the company had doubled its revenue and increased its operating and net income roughly 50% and 30%, respectively.
Then, Oriflame began posting unsatisfactory results 2011. At the end of 2015, revenue was down 20% as compared to what it was in 2010 and net income was about one-third!
“CIS Region”
Oriflame’s CIS region, which had once been the largest of all, has been a major contributor to this picture. Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Mongolia, Russia and Ukraine are the markets here.
Year-over-year growth has been negative every quarter for quite some time now. Sales in this region in 2015 was €387 million, 30% down from 2014. In absolute figures, the loss in sales here in one year was €207 million, representing 17% of company’s global revenue. So, all others being equal, should CIS countries had posted only flat sales in 2015, the company would have achieved 12% global growth last year.
2016
This year’s first quarter was not that bright for Oriflame, too. Company’s sales was down 1%, unit sales by 6%, and the number of active consultants by 9%, as compared to the first quarter of 2015. The situation in the CIS countries worsened: Revenue growth was -20% there.
With the weakening of the CIS, and the growth in Oriflame’s Asia & Turkey, regional ranking has changed from last year as below:
Then, ended the second quarter and Oriflame reported different results this time: Global sales was up %3 and unit sales increased by 5%. Operating profit increased by 42% and net profit doubled.
Oriflame’s operating profit of €52 million and net profit of €29 million after the first six months were substantially higher than its 2015 first-half results (Op. Profit= €39 million, Net Profit= €20 million). These figures have not been seen on Oriflame’s reports for a long time. Probably the only negative development was on the field: Number of active consultants decreased by 5% to 2.9 million in the second quarter.
CEO Magnus Brannstrom was saying, “We are pleased with the healthy sales development during the second quarter where we report Euro growth despite strong currency headwinds, partly fueled by positive timing and a strong start of the quarter. The solid performance in Asia & Turkey and Latin America continued… We continue to execute on our strategic priorities to further strengthen our position and efficiency going forward.”
Of the two regions Brannstrom stressed, Asia & Turkey’s quarterly year-over-year growth was 26%, and Latin America’s was 8%. But the sitaution in CIS was again, a disaster: -20%. The management was happy to see the first growth in local currency in CIS countries for a long time. However, the company reports in Euros and at the end of the day Euro numbers are the ones that matter from investors’ point of view.
Company Valuation
Oriflame’s poor performances in the past had been reflected on its share price. After peaking at SEK (Swedish Krona) 455 in 2010, it went down to as low as SEK 136 at the end of 2015. With the positive results in 2016 Oriflame stock started to pick up. At the end of the first quarter it was at SEK 158 (16% up from previous year-end) and in September this year, it exceeded SEK 300. The last time Oriflame stock saw this price was in late-2011. With all these, Oriflame is now valued at SEK 17.6 billion, which is approximately USD 2.1 billion. The evolution of Oriflame’s share value since 2013 is shown below:
Looking Forward
Things seem to be improving at Oriflame in 2016, after a few years of quite unsatisfactory results. The two questions that will find their answers in the coming months are:
1) If Oriflame will manage to sustain the momentum gained in its non-CIS markets.
2) Whether it will be able to either find a way of reversing the ongoing negative trend in the CIS countries or choose a radical solution like Avon did in North America.