Consumer

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Avon Products Inc. is throwing cargo overboard, but its ship is still sinking.

The door-to-door cosmetics seller announced on Thursday that CEO Sherilyn McCoy would step down next year, ending a tenure marked by turnaround efforts that have done little to stop the erosion of Avon's profit and stock price.

Activist investors Barington Capital Group and NuOrion Partners had called for McCoy's departure in May, after Avon reported a surprise first-quarter loss. I noted then that a shake-up was hardly a sure fix. That's even more true in light of the equally, if not more, dismal second-quarter numbers Avon also reported Thursday.

Quite a Tenure
Avon has lost more than $8 billion of market value under McCoy's watch
Source: Bloomberg

Avon announced another quarterly loss and revenue that was weaker than expected. Despite progress toward its goal of cutting $230 million in costs this year, Avon's adjusted operating margin shrank 230 basis points from the year-earlier period to a mere 5 percent. And even though improving engagement with its dwindling pack of representatives is supposed to be a key tenet of Avon's turnaround push, the number of active salespeople hawking its products dropped 3 percent in the quarter. Avon now expects to come in at the low end of its previous 2017 guidance of low-single digit revenue growth (adjusted for currency swings) and 100 to 140 basis points of adjusted operating margin expansion.

The point being: Avon's efforts to revive itself aren't working. And it's not clear anyone has any better ideas, including the activists that pushed for McCoy's ouster.

The letter Barington sent to Avon in late 2015 called for cost cuts and "re-establishing service excellence" to recapture market share. Avon has been trying to do all that, while also hiving off its money-losing North American business in exchange for a capital infusion from Cerberus Capital Management and moving its headquarters to the tax-friendlier U.K.

Avon should have made more-drastic changes much sooner, and the activist investors are right to hold McCoy accountable for that. To be fair, it's worth remembering that responsibility for many of Avon's biggest blunders -- including bribery practices in China that cost $500 million to clean up, and a squandered 2012 takeover offer from Coty Inc. that was worth a stunning $9 billion or so more than Avon's current market value -- lies with her predecessor, Andrea Jung. 

Turnaround Road to Nowhere
Despite big promises of change, Avon's earnings have been a near constant source of disappointment
Source: Bloomberg

But this is where we are. And, absent a time machine, there are no quick fixes. 

Could Avon do more on the cost-cutting front? Probably, but that won't stabilize Avon by itself.

One big motivator for de-bloating Avon's cost structure and taking that capital infusion from Cerberus was to give it resources to invest in a business model that's more relevant and attuned to online shopping habits. Worryingly, Avon on Thursday said it was expecting to reduce its planned capital investments by $20 million this year. That will increase free cash flow, but won't do much to stop the defection of representatives or help it compete with the Birchboxes, Sephoras and Amazon.coms of the world.

Avon has seven months to find a new CEO. If you know any miracle workers looking for a job, send over their names.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net