Natura &Co posts constant currency sales growth and profitability

natura co posts constant currency sales growth and profitability

Natura &Co (NYSE – NTCO; B3 – NTCO3) posted a resilient performance in the first quarter of 2023, with sales growth in constant currency and an improvement in profit margins.

Natura &Co posted Q1 consolidated net revenue of R$ 8 billion, up 3.4% at constant currency (-2.8% in BRL), driven by solid constant currency (CC) growth at Natura &Co Latam and Aesop. Gross margin was 67.7%, up 370 bps vs Q1-22, and adjusted EBITDA margin was 10.5%, up 330 bps vs the same period last year, reflecting improving margins at Natura &Co Latam and Avon International and a 36% drop in Holding expenses. Net income was R$ (652.4) million, a sequential improvement vs the previous quarter and broadly in line with last year's R$ (643.2) million in the period. The Group ended the quarter with a solid cash position of R$ 4 billion.

Fabio Barbosa, Group CEO of Natura &Co, declared: "Natura &Co's performance in the first quarter is in line with our plan and with our previous communication, as Q1 numbers show a solid improvement both in gross and adjusted EBITDA margin, while the company continues to put in action important structural changes in its portfolio, focusing on simplifying its structure and improving its capital structure.

Excluding Aesop, Q1-23 showed a strong profitability improvement, mainly driven by gross margin expansion across all business units and continuous cost control, that were partially offset by sales deleverage at The Body Shop, Avon Latam and, to a lesser extent, Avon International. This quarter's gross margin expansion is driven by price increase carry-over and more favorable mix, more than offsetting the inflationary environment we continue to experience. As per the normal seasonality of the business, cash consumption in Q1 was high, as planned, and working capital management was impacted by build-up of inventories for Q2 and changes related to the continued integration of the Natura and Avon brands in Latam. From a revenue standpoint, the highlight remains the Natura brand, which continued its strong momentum from last year, with Natura Brazil sales growing 25%, led by volume and strong productivity growth.

Shortly after the close of the quarter, Natura & Co announced important milestones, which are transformational for the future of the group. First, the group announced it has entered into a binding agreement to sell Aesop to L'Oréal for an enterprise value of US$2.525 billion (subject to customary regulatory approvals). Furthermore, in April we had our first day of full integration of Natura and Avon in Peru as part of Wave 2, with sales forces completely integrated and sharing the same experience. Finally, The Body Shop announced it was entering its next chapter, with Ian Bickley taking over as interim chief executive after David Boynton stepped down.

Our triple bottom line agenda also showed important advances, with significant improvements in the share of renewable or natural ingredients and of biodegradable formulas. Natura &Co also released its third pay equity report, showing we maintained our target of equal representation, with 52.7% of women in leadership roles -Director and above- across the organization.

While 2023 continues to shape up as another challenging year, our strategic priorities are clear and, the first results give us confidence that we are on the right track. We believe that massively reducing the company's net debt, combined with stronger EBITDA margins resulting from the businesses' operational improvement, alongside our relentless focus on cash conversion, will pave the way for strong cash generation in the coming years, allowing us to make disciplined investments in our business priorities and unlocking value for our shareholders."

Performance by business unit:

Natura &Co Latam's net sales were up by 9% in constant currency ("CC) and up 2.4% in BRL. CC growth was driven by double-digit growth at the Natura brand, which grew by 25.1%, while the Avon brand was down 9.8% at CC. The Natura brand posted strong momentum, with growth of 24.9% in Brazil, supported by price increases and better mix, as well as 20.4% growth in consultant productivity in Q1. In Hispanic Latam, net revenue was up 25.5% at constant currency despite a challenging situation in several countries, driven by Argentina and Colombia. The Avon brand in Brazil was broadly stable vs the same period last year (-0.6%) in Q1. The Beauty segment continued to grow, with sales up +5.6%, while Fashion and Home (F&H) was down 18%, in line with our portfolio optimization strategy. In Hispanic markets, net revenue was down 14.8% at CC (-22% in BRL). Performance was good in Argentina, but impacted by a decrease in Mexico and Chile. The Beauty category was broadly stable in constant currency, while beauty productivity per representative is up more than 20% year-on-year. Adjusted EBITDA margin was up by a solid 400 basis points to 13%. Margin benefited from strong gross margin improvement and SG&A efficiencies by the Avon brand in Brazil, even as the Natura brand continued to invest in marketing and innovation.

Avon International's revenue was down 7.5% at CC (-12.8% in Reais.) This drop continues to reflect the situation in Ukraine; excluding that, CC sales were down 4%. The TMEA region showed year-on-year growth, while Western Europe posted a slightly better performance. Digitalization is progressing and the use of digital tools reached 30.4%, up from 21.9% in the first quarter last year. Adjusted EBITDA margin was 6.1%, up 170bps, driven by gross margin expansion of 480 bps thanks to price increases and product mix, combined with continued focus on transformation savings.

The Body Shop's Q1 net revenue declined by 9.4% at constant currency (-16.5% in BRL.) The tough macro environment, particularly in the UK and the rest of Western Europe, continued to impact retail sales, while The Body Shop at Home continued its steep decline. Adjusted EBITDA margin was 6.1%, down only 30 bps year-on-year, thanks to a return to positive territory of gross margin, up 50 bps to 78.6%, combined with strict cost control. efficiency gains. Under the new CEO, management will be working to refine The Body Shop's current business plan and transformation agenda, while continuing to prioritize profitability and cash conversion recovery.

Aesop again recorded another quarter of double-digit growth in constant currency, up 16.8% (+9.2% in BRL). All regions delivered double-digit growth despite the challenging environment. Fragrance sales grew at more than twice the overall pace, aligned with Aesop's category diversification strategy. Q1 adjusted EBITDA margin was 18.5%, down 320 bps, mainly reflecting planned investments to deliver sustainable growth. Following the announcement of its sale to L'Oréal, whose closing is expected in the third quarter, Aesop has been classified as Discontinued operations.

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.