May 9, 2023
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Body Shop owner Natura's Q1 is loss-making but it hails stronger performance

May 9, 2023

The Body Shop’s owner Natura &Co has reported what it called a “resilient performance” for the first quarter of 2023, with sales growth in constant currency and an improvement in profit margins. It was still loss-making at a headline level, however. 


Consolidated net revenue was BRL8 billion, up 3.4% at constant currency (CC) but down 2.8% in BRL, driven by “solid” CC growth at Natura &Co Latam and the Aesop brand that it’s selling to L'Oréal for an enterprise value of $2.525 billion, subject to regulatory approval. 

The gross margin was 67.7%, up 370 bps vs Q1 2022. And the adjusted EBITDA margin was 10.5%, up 330 bps year on year, “reflecting improving margins at Natura &Co Latam and Avon International, and a 36% drop in Holding expenses”. 

The net loss was BRL652.4 million, “a sequential improvement vs the previous quarter” and “broadly in line with” last year’s slightly smaller Q1 net loss.

Group CEO Fabio Barbosa said the performance was “in line with our plan… while the company continues to put in action important structural changes in its portfolio, focusing on simplifying its structure and improving its capital structure”.

Excluding Aesop, Q1 showed “a strong profitability improvement, mainly driven by gross margin expansion across all business units and continuous cost control, that were partially offset by sales deleverage at The Body Shop, Avon Latam and, to a lesser extent, Avon International”. 

The quarter's gross margin expansion was driven by “price increase carry-over and more favourable mix, more than offsetting the inflationary environment we continue to experience”.

By business unit The Body Shop’s Q1 net revenue fell 9.4% CC and 16.5% in BRL. “The tough macro environment, particularly in the UK and the rest of Western Europe, continued to impact retail sales, while The Body Shop at Home continued its steep decline,” the company said. 

But the adjusted EBITDA margin was 6.1%, “down only 30 bps year on year,” thanks to a return to positive territory for the gross margin (up 50 bps to 78.6%), combined with strict cost controls and  efficiency gains. 

Under its new CEO, “management will be working to refine The Body Shop's current business plan and transformation agenda, while continuing to prioritise profitability and cash conversion recovery”.

Meanwhile, Natura &Co Latam's net sales were up by 9% CC and 2.4% in BRL. CC growth was driven by double-digit growth at the Natura brand, which rose by 25.1%, while the Avon brand was down 9.8% at CC. 

Avon International's revenue was down 7.5% CC and dropped 12.8% in BRL as it continued to reflect the situation in Ukraine. Excluding that, CC sales were down 4%. The TMEA region showed year on year growth, while Western Europe posted a slightly better performance.

The adjusted EBITDA margin was 6.1%, up 170bps, driven by gross margin expansion of 480 bps thanks to price increases and product mix, combined with a continued focus on transformation savings.

Meanwhile, Aesop again recorded another quarter of double-digit CC growth with a 16.8% jump and a 9.2% rise in BRL. All regions delivered double-digit growth despite the challenging environment. Fragrance sales grew at more than twice the overall pace, “aligned with Aesop's category diversification strategy”. But the adjusted EBITDA margin was 18.5%, down 320 bps, “mainly reflecting planned investments to deliver sustainable growth”.

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