Strong growth by Natura Latam and improving fundamentals at
Avon International; solid improvement of 430 bps in gross margin
in the quarter
SÃO PAULO, Aug. 15, 2023
/PRNewswire/ -- Natura &Co (NYSE – NTCO; B3 – NTCO3) posted
another quarter of sales growth in constant currency in the second
quarter of 2023, while also continuing to improve its profit
margins.
Natura &Co posted Q2 consolidated net revenue of
R$ 7.8 billion, up 1.9% at constant
currency (-4.1% in BRL), driven by solid constant currency (CC)
growth at Natura &Co Latam. Gross margin was 65.4%, up 430 bps
vs Q2-22, and adjusted EBITDA margin was 9.7%, up 230 bps vs the
same period last year, reflecting improving margins at all three
business units, Natura &Co Latam, Avon International and The
Body Shop, as well as a 5.7% drop in corporate expenses. Net income
was R$ (732) million, slightly
improving over last year's R$ (767)
million in the period, while Underlying Net Income was
R$ (219) million, also improving from
R$ (262) million in Q2-22. The Group
ended the quarter with a solid cash position of R$ 3.7 billion.
Fabio Barbosa, Group CEO of
Natura &Co, declared: "Natura & Co's second-quarter
performance continued to show the improvement already observed in
Q1, with low-single digit top line growth at constant currency and
a significant improvement in adjusted EBITDA margin. This was
mainly driven by gross margin, benefiting from mix effects,
partially offset by investments and inflation. Net income was still
impacted by high financial expenses, which will be addressed upon
closing of the sale of Aesop, expected to occur in Q3-23.
Cash conversion remains our main focus, and this quarter we saw
further improvement in operating working capital dynamics,
partially offsetting seasonal cash consumption in the quarter. We
continue to drive our cash conversion improvement, mainly through
working capital and net Capex optimization, among others, and we
still see more opportunities to be captured on these fronts,
although we might face volatility from quarter to quarter.
Q2 23 was also a landmark quarter for us, as we kicked off Wave
2 of the Natura-Avon integration in Latin
America, beginning with Peru and Colombia, with quite compelling initial
results. In both markets, we saw a meaningful acceleration of
cross-selling between brands, and more importantly, significant CFT
productivity growth, resulting in greater prosperity for our beauty
consultants. As we enter H2, our focus turns to the roll out of
Wave 2 in Brazil. We are pleased
with the initial learnings from Peru and Colombia, and we are confident that they will
support us to deliver strong results for our biggest market in the
region and the other ones that will follow.
ESG remains in the forefront of our strategy, and I'm pleased to
announce that Natura &Co obtained approval from the Science
Based Targets initiative (SBTi) for its ambitious plan to reduce
absolute scopes 1, 2 and 3 Greenhouse Gas emissions by 42% by 2030
from a 2020 base year. Our target is in line with the 1.5°C
trajectory required by the Paris Agreement.
Our results improved in H1 23, but we are still not satisfied
with them. We look forward to delivering our strategy, continuing
to position Natura &Co on the course towards strong
profitability and low leverage, allowing us to pursue meaningful
and sustainable growth in the future. Closing the sale of Aesop,
implementing Wave 2 in Latam, further work on simplifying and
turning around our international assets while delivering our ESG
agenda are fundamental steps that will help us achieve our
ambition."
Performance by business unit:
Natura &Co Latam's net sales were up by 5.8% in
constant currency ("CC") and down 1.7% in BRL. CC growth was driven
by double-digit growth at the Natura brand (+19.5% at CC and +17.3%
in BRL). The Natura brand posted strong momentum, with
growth of 14.7% in Brazil,
supported by price increases and better mix, as well as 12.5%
growth in consultant productivity and an outstanding retail
performance, notably marked by excellent Mother's Day and
Valentine's Day campaigns. In Hispanic Latam, net revenue was up
30% at constant currency (+7.7% in BRL) despite a challenging
situation in several countries, driven by Peru and Colombia. The Avon brand posted a sales
decrease of 4% in CC in the Beauty segment. In Brazil, revenue in the Beauty segment was down
1.8%, while Home & Style (formerly known as Fashion and Home)
was down 28.5% in Brazil, in line
with our portfolio optimization strategy. In Hispanic markets, net
revenue in the Beauty category was down 5.6% at CC (-20.3% in BRL
excluding Argentina), while Home
& Style decreased 39.9% amid the roll-out of Wave 2 of
integration. Adjusted EBITDA margin was up by a solid 250
basis points to 13.3%. Margin benefited from strong gross margin
improvement, notably at the Avon brand in Brazil, even as the Natura brand continued to
invest in marketing and innovation.
Avon International's revenue was down 1.3% at CC (-8.1%
in BRL.) The TMEA and CEE regions posted year-on-year growth. The
Beauty category posted growth of 3%, driven by fragrance and color.
Digitalization is progressing and the use of digital tools reached
30.6%. Adjusted EBITDA margin was 4.4%, up 110bps, driven by gross
margin expansion of 460 bps thanks to price increases and product
mix.
The Body Shop's Q2 net revenue declined by 12.5% at
constant currency (-12% in BRL.) Combined sales of core
distribution channels (stores, e-commerce and franchise) showed a
mid-single digit decline in CC while The Body Shop at Home
continued its steep decline. Adjusted EBITDA margin showed an
improvement by 210 basis points to 5.4%, thanks to another quarter
of gross margin growth, up 30 bps to 77.8%, combined with strict
cost control. The Body Shop continues to focus on structural cost
reduction as it works to improve margin and cash generation.
Aesop has been classified as discontinued activities
pending the closing of the sale to L'Oréal. The Q2 numbers
exclude its operating performance and the comparable 2022 numbers
have been restated accordingly, but net income in both periods also
includes discontinued activities.
About Natura &Co
Natura &Co is a global, purpose-driven, multi-channel and
multi-brand cosmetics group which includes Avon, Natura, The Body Shop and Aesop. Natura
&Co posted net revenues of R$36.3
billion in 2022. The four companies that form the group are
committed to generating positive economic, social and environmental
impact. For 136 years Avon has
stood for women: providing innovative, quality beauty products
which are primarily sold to women, through women. Founded in 1969,
Natura is a Brazilian multinational in the cosmetics and personal
care segment, leader in direct sales. Founded in 1976 in
Brighton, England, by Anita Roddick, The Body Shop is a global beauty
brand that seeks to make a positive difference in the world. The
Australian beauty brand Aesop was established in 1987 with a quest
to create a range of superlative products for skin, hair and the
body.
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