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Avon Rallies on Open Up Plan, Outruns S&P 500 & Industry

Zacks Equity Research

Avon Products, Inc. AVP has been gaining momentum on the back of its ‘Open Up Avon’ strategy, which bode well for future growth. This strategy mainly focuses on reviving the company’s direct selling business model, renovating the brand, enhancing e-commerce and other capabilities to aid a performance-driven transformation. The company also remains committed to accomplish the financial targets for 2021.

Impressively, shares of this Zacks Rank #1 (Strong Buy) stock have skyrocketed 156.6% year to date, significantly outperforming the industry’s 36% rally and the S&P 500 Index’s 16.9% gain.

Let’s Delve Deeper

Avon remains well on track with the execution of Open Up Avon strategy. As part of this plan, management expects to improve operating efficiency, slash inventory levels and reduce portfolio complexity by certain restructuring efforts, including a 25% decrease in Stock Keeping Units (SKUs), a 15% reduction in inventory levels and a 10% job cuts. These jobs cuts are estimated to fetch Avon annualized pre-tax savings of nearly $97 million by 2019 end.

In addition, Avon is capitalizing on growth opportunities in the fast-growing e-commerce realm, making this platform a major growth driver. The company also remains committed to improving digital tools and e-commerce channel to boost sales and Representative experience. Avon created dedicated e-commerce business units in all key markets, which helped it to steadily increase sales through this channel. Management targets doubling e-commerce sales in 2019.

In relation to Avon’s financial targets for 2021, the company intends to generate total cost-savings of $400 million by expanding manufacturing and distribution, outsourcing efficiencies, zero-based redesigning of back office functions, reducing certain facilities and managing revenue, interest and tax.

Furthermore, management expects to invest roughly $300 million toward commercial, digital & IT infrastructure projects. Investments in the digital & IT infrastructure initiatives also include reinforcing the company’s balance sheet, where its cash-generating abilities must exceed the investment plans. By 2021, Avon expects to achieve revenue growth of low-single digits and margin expansion of low double-digits.

However, the company has been grappling with soft Representatives growth for quite some time now. This remains a major concern for the company. This has been weighing on the company’s top line, which lagged the Zacks Consensus Estimate in eight of the last 11 quarters.

Moving ahead, we expect the company’s robust strategic endeavors to revive its Representatives growth.

3 Other Key Picks

Celsius Holdings, Inc. CELH delivered a positive earnings surprise of 66.7% in the last reported quarter. Also, the company sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

General Mills, Inc. GIS has a Zacks Rank #2 (Buy) and delivered average positive earnings surprise of 11.4% in the last four quarters.

Campbell Soup Company CPB pulled off average positive earnings surprise of 11.6% in the last four quarters and carries a Zacks Rank #2.

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