Avon 2014 Annual Report Download - page 42

PART II
2014 Compared to 2013
Revenue
Total revenue in 2014 compared to 2013 declined 11% compared to the prior-year period, due to unfavorable foreign exchange. Constant
$ revenue was relatively unchanged, and benefited by approximately 1 point due to the net impact of certain tax benefits in Brazil. In 2014
and 2013, we recognized tax credits in Brazil of approximately $85 and approximately $29, respectively, primarily associated with a change
in estimate of expected recoveries of Value Added Tax (“VAT”). Constant $ revenue was negatively impacted by a 5% decrease in Active
Representatives, partially offset by higher average order. Units sold decreased 5% while the net impact of price and mix increased 5%, as
pricing benefited from inflationary impacts in Latin America, primarily in Argentina and Venezuela. See “Segment Review – Latin America”
in this MD&A for a further discussion of the tax benefits in Brazil.
On a category basis, our net sales and associated growth rates were as follows:
Years ended December 31 %/Point Change
2014 2013 US$ Constant $
Beauty:
Skincare $2,588.5 $2,924.6 (11)% (1)%
Fragrance 2,121.0 2,380.9 (11) 3
Color 1,559.6 1,797.7 (13) (2)
Total Beauty 6,269.1 7,103.2 (12) –
Fashion & Home:
Fashion 1,407.6 1,623.5 (13) (6)
Home 939.2 1,037.7 (9) 4
Total Fashion & Home 2,346.8 2,661.2 (12) (2)
Net sales $8,615.9 $9,764.4 (12) (1)
During 2014, our Constant $ revenue was impacted by net declines in North America and to a lesser extent, Asia Pacific, which were
partially offset by net growth in Latin America and Europe, Middle East & Africa. North America continued to experience year-over-year
revenue declines, driven by a decrease in Active Representatives. Constant $ revenue growth in Latin America was primarily driven by
Venezuela largely due to inflationary pricing, which was partially offset by declines in Mexico. Constant $ revenue growth in Europe, Middle
East & Africa was driven by South Africa and the United Kingdom, which was partially offset by revenue declines in Russia and Turkey.
Constant $ revenue in Russia was negatively impacted by a difficult economy, including the impact of geopolitical uncertainties, and its
decline in the first half of 2014 was partially offset by Constant $ revenue growth in the second half of 2014 driven by actions to improve
unit sales. In Asia Pacific, Constant $ revenue declined as compared to 2013 as growth in the Philippines was more than offset by declines in
the other Asia Pacific markets. See “Segment Review” in this MD&A for additional information related to changes in revenue by segment.
Operating Margin
Operating margin and Adjusted operating margin increased 20 basis points and 40 basis points, respectively, compared to 2013. The
increase in Adjusted operating margin includes the benefits associated with the $400M Cost Savings Initiative, primarily reductions in
headcount, as well as other cost reductions. The increase in operating margin and increase in Adjusted operating margin are discussed
further below in “Gross Margin,” “Selling, General and Administrative Expenses” and “Impairment of Goodwill and Intangible Assets.”
Gross Margin
Gross margin and Adjusted gross margin decreased by 160 basis points and 70 basis points, respectively, compared to 2013. The gross
margin comparison was largely impacted by an adjustment of approximately $116 associated with our Venezuela operations to reflect
certain non-monetary assets at their net realizable value, which was recorded in the first quarter of 2014. Partially offsetting the decrease in
gross margin was a lower negative impact of the devaluation of the Venezuelan currency in conjunction with highly inflationary accounting,
as approximately $5 was recognized in the current-year period as compared to approximately $45 in the prior-year period associated with
carrying certain non-monetary assets at the historical U.S. dollar cost following a devaluation. See “Segment Review – Latin America” in this
MD&A for a further discussion of Venezuela.