May 6, 2022
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Natura has tough Q1 as Body Shop struggles, but Aesop is strong

May 6, 2022

The Body Shop, Aesop and Avon owner Natura &Co said on Friday that its Q1 “performance was impacted by the continued Avon transformation, challenging global environment and tough comparable base”.

The Body Shop - DR

That said, the group “recorded positive signs including a resumption of growth at Natura in Brazil and further improvement in Avon's fundamentals, while Aesop continued its strong growth”.

In fact, Aesop was a standout performer. Net revenue rose 21.3% at constant currency (+9.6% in BRL). All markets delivered double-digit growth, led by North America and Asia-Pacific. It “consistently posted superior sales growth relative to global luxury brands”, it noted. 

But the Q1 adjusted EBITDA margin was 21.7%, down 500 bps compared to a year ago, mainly due to planned higher investments in digital, categories and geographies to drive future sustainable growth.

And The Body Shop was much weaker with its net revenue down 16% at constant currency (-22.9% in BRL), “mainly reflecting lower disposable income in Europe and an expected channel rebalancing, with retail's recovery offset by a drop in TBS At Home and e-commerce after outperforming during lockdowns”. 

The chain’s Q1 adjusted EBITDA margin was 6.4%, down 830 bps vs Q1 last year, due to the absence of one-off pandemic-related government support that boosted last year, channel mix rebalancing and sales deleverage from deceleration in key markets. However, the EBITDA margin is expected to recover in H2.

Overall, the group posted consolidated net revenue of BRL8.3 billion (€1.5bn/£1.3bn/$1.6bn), down 4.6% at constant currency and 12.7% in BRL. The adjusted EBITDA margin was 7.2% (-300 bps) on the back of a very strong comparable base, as Q1 of last year saw sales growth of 8.1% at constant currency and 25.8% in BRL. 

The net loss was BRL643.1 million, much wider than the loss of a year earlier, although the group ended the quarter with a solid net cash position of BRL4.5 billion.

As mentioned in relation to The Body Shop, the group’s wider Q1 performance was notably impacted by rising inflation affecting discretionary spend in key markets. Also causing problems were cost pressures in the supply chain, unfavourable currency movements and the first effects of the war in Ukraine. 

But it also reflects strategic decisions by Natura &Co related to Avon's transformation, including a reduction in the product portfolio and the implementation of the new commercial model, “with first indicators already showing improvements”.

Natura also said that the ramp-up of digitally-enabled sales continued, reaching 50.8% of total revenue, compared to 47.7% a year ago, and 35% pre-pandemic. This was driven by continued growth at Natura and Avon. 

Looking closer at Natura and Avon, Natura &Co Latam's net revenue fell by 2.1% in constant currency (-8.4% in BRL) in Q1.

The Natura brand posted 5.3% growth in Latin America at constant currency (-1.9% in BRL). Growth resumed in Brazil (+3.2% at constant currency and +3.1% in BRL) and the Natura brand “made significant market share in the quarter”. Natura's sales were also up 8% in constant currency in Hispanic Latam markets (-8.7% in BRL). 

The Avon brand's revenue was down 11.1% at constant currency (-16.3% in BRL). In Brazil, net revenue improved sequentially since Q3 2021 but was still down -17%, with beauty sales declining by a more limited 9.7%. In Hispanic markets, net revenue was down 7.9% in constant currency (-16% in BRL). 

Avon International's net revenue fell 10.1% at constant currency (-22.1% in BRL), hurt by the war in Ukraine, lower disposable income in Europe from rising inflation and fewer representatives. This reflected a higher comparable base last year when the channel benefited from lockdown, as well as intentional optimisation linked to the implementation of the new commercial model.

Avon's “business fundamentals continued to improve, with an increase of 9.1% in productivity and stable activity” (excluding Russia and Ukraine). The Q1 adjusted EBITDA margin stood at 4.4%, +30 bps, “a major achievement, supported by strict financial discipline and structural savings from the simplification of the operating model”.

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