Avon 2010 Annual Report Download - page 40

PART II
Total Revenue
During 2010, total revenues increased 6%, favorably impacted by growth in Active Representatives. Constant $ revenues also increased 6%.
Acquisitions of Silpada in late July, and Liz Earle in late March, contributed approximately 1 point to revenue growth. Active Representatives
increased 4%.
On a category basis, the increase in revenue during 2010 was primarily driven by an increase of 6% in Beauty sales. Within the Beauty
category, fragrance increased 11%, color cosmetics increased 7%, personal care increased 5% and skincare declined 3%. Fashion sales
increased 11% and Home sales increased 3%. On a Constant $ basis, the Beauty category increased 6%. Within the Beauty category,
Constant $ sales of fragrance increased 12%, color cosmetics increased 6%, personal care increased 5% and skincare declined 3%. Skincare
growth rates benefited by 3 points from the Liz Earle acquisition. Constant $ sales of Fashion and Home increased 11% and 5%,
respectively. Fashion growth rates benefited by 6 points from the Silpada acquisition.
As noted previously in our Overview section, strong revenue performance during the first half of 2010 was offset by a slowdown in revenue
growth during the second half of the year. Our second half of 2010 revenue growth was negatively impacted by a slowdown in two of our
largest markets, Brazil and Russia. Brazil’s performance in the second half of 2010 was primarily driven by service disruptions resulting in
shorting of products. The mid-year implementation of government mandated e-invoicing exacerbated our legacy order processing systems
and capacity which have also been pressured by a significant increase in order scale in recent years. Russia’s performance in the second half
of 2010 was primarily a result of slowing field growth due to weak incentives. Increases in social benefit taxes levied against certain
Representatives exacerbated the slowdown in field growth. In Russia, weaker color and skincare performance negatively impacted growth in
the second half of 2010.
Total revenue decreased 3% in 2009, with unfavorable foreign exchange accounting for 9 percentage points of the revenue decline.
Constant $ revenue increased 6%, with increases in all segments except North America and China. Active Representatives increased 10%.
On a category basis, Constant $ Beauty sales increased 7%, while Fashion increased 2% and Home increased 6%. Within the Beauty
category, Constant $ sales of skincare was flat, fragrance increased 7%, personal care increased 8% and color cosmetics increased 15%. On
a reported basis, the decrease in revenue for 2009 was primarily driven by a decrease of 3% in Beauty sales, with decreases in all
sub-categories of Beauty except color cosmetics. Within the Beauty category, skincare declined 9%, fragrance declined 2%, personal care
declined 2% and color cosmetics increased 3%. Fashion sales decreased 5% and Home sales decreased 2%.
For additional discussion of the changes in revenue by segment, see the “Segment Review” section of this MD&A.
Gross Margin
Gross margin for 2010, increased by .3 points. On a Non-GAAP basis, excluding the impact of the CTI restructuring and the Venezuelan
special items, gross margin improved .9 points, reflecting benefits from manufacturing productivity gains, which include benefits from SSI,
and the favorable impact of foreign exchange transactions.
Gross margin for 2009 decreased by 0.5 points. The unfavorable impact of foreign exchange transactions lowered gross margin by an
estimated 1.7 points for 2009. A portion of this negative impact from foreign exchange transactions was offset by strong manufacturing
productivity gains which included benefits from SSI and strategic price increases. 2008 gross margin included benefits of approximately $13
of reduced obsolescence from changes in estimates to our disposition plan under our PLS program.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 2010 increased $374.3. The increase is primarily due to: higher advertising and RVP costs;
significant professional and related fees associated with the FCPA investigation and compliance reviews described in Note 16 to the
Consolidated Financial Statements of approximately $95 (up approximately $59 from 2009); and higher volume related costs, such as
distribution costs, partially offset by lower CTI from our restructuring initiatives. On an Adjusted Non-GAAP basis, excluding the impact of
CTI restructuring and the Venezuelan special items, as a percentage of revenue, selling, general and administrative expenses during
2010, increased by 1.2 points, due to higher advertising and RVP costs and the significant professional and related fees associated with
the FCPA matters.