Avon profit plummets 82% - FT.com Avon Products, the cosmetics retailer, reported worse than expected first-quarter profit as the company dealt with cost pressures and a fall in the number of active door-to-door sellers, which led to a drop in sales. The direct seller which is fending off an unsolicited $10bn offer from Coty, the fragrance group, said on Tuesday that net income fell 82 per cent to $26.5m, or 6 cents a share, from $143.6m, or 33 cents, in the same quarter a year earlier. Excluding certain items, Avon posted a profit of 10 cents a share, well below the 28 cents analysts had expected. Total revenues, adjusted for currency fluctuations, were up 1 per cent at $2.6bn year on year. But the number of active sales representatives fell 2 per cent, with North America hit hardest. The company said its gross margin fell 3.1 percentage points to 60.8 per cent of sales, hurt by labour expenses and the costs to make its cosmetics. Ali Dibadj at Sanford Bernstein said: "While the top line is a little better, the problem is that the margins really stink. They spent a lot of money to get that growth. We need to ask if this spend is needed to fix the company or whether Avon is just plugging holes. Avon has been grappling with a host of financial and legal troubles, including bribery allegations and a Securities and Exchange Commission investigation into the company over its contacts with analysts. The company appointed Sheri McCoy, a Johnson & Johnson vice-chairman, as chief executive last month as it tried to strengthen its defences. Kimberly Ross, Avon's chief financial officer said: "While our first-quarter operating performance remained challenged, we are making progress towards addressing some of our operational and cost-cutting opportunities. With Sheri McCoy now on board, we are confident that her broad leadership experience and skills in managing large, complex, global organisations will help drive Avon's future success. Avon shares fell 2.6 per cent in pre-market trading. "If their stock drops to $20 today, shareholders will be asking why Avon is not considering Coty's $23.25 offer," said Linda Bolton-Weiser, an analyst at Caris. The board is going to have to try very hard to defend itself. There were, however, some signs of improvement. Sales in Brazil, Avon's biggest market, rose 2 per cent against a backdrop of aggressive competition, helped by an increase in the number of sales representatives.