Natura & Co Posts R$7.8Bn Net Revenue in Q2, Sequential Growth in Asia
- Chaileedo Press
- Aug 15, 2023
- 4 min read
Natura & Co said Aesop's profitability in China was slightly under pressure as the group accelerated its store opening program.
Natura & Co, a leading global beauty company, has reported another quarter of sales growth and improved profit margins in its second-quarter 2023 financial report. Despite facing certain challenges, the company showcased solid performance across its business units.
In the second quarter, Natura & Co achieved consolidated net revenue of R$ 7.8 billion ($1.6 billion), representing a 1.9% increase in constant currency (a decrease of 4.1% in BRL). The growth was primarily driven by strong performance in Natura & Co Latam, which experienced solid constant currency growth. Notably, Natura & Co achieved a gross margin of 65.4%, a significant improvement of 430 basis points compared to the second quarter of the previous year.
The company's adjusted EBITDA margin also showed improvement, increasing by 230 basis points to 9.7% compared to the same period last year. This positive trend in profit margins was observed across all three business units: Natura & Co Latam, Avon International, and The Body Shop. Despite this progress, net income still faced challenges, with a reported value of R$ (732) million ($147.5 million), although it demonstrated a slight improvement compared to the previous year's figure of R$ (767) million ($154.5 million) for the same period. Underlying Net Income also improved, reaching R$ (219) million ($44.1 million) compared to R$ (262) million ($52.8 million) in Q2-22. The company ended the quarter with a strong cash position of R$ 3.7 billion ($745.4 million).
In the second quarter of 2023, Natura & Co achieved significant milestones, particularly in the Natura-Avon integration in Latin America. Wave 2 of the integration commenced in Peru and Colombia, yielding compelling initial results. These markets witnessed substantial cross-selling between brands and remarkable productivity growth, leading to greater prosperity for beauty consultants. As the company enters the second half of the year, it plans to roll out Wave 2 in Brazil and expects similar positive outcomes.
ESG (Environmental, Social, and Governance) remains at the forefront of Natura & Co's strategy. The company proudly announced its approval from the Science Based Targets initiative (SBTi) for its ambitious plan to reduce absolute scopes 1, 2, and 3 Greenhouse Gas emissions by 42% by 2030 from a 2020 base year. This target aligns with the trajectory required by the Paris Agreement to limit global warming to 1.5°C.
Analyzing the performance by business unit, Natura & Co Latam achieved a net sales of BRL 5.46 billion ($1.1 billion) up 5.8% in constant currency (a decrease of 1.7% in BRL). The Natura brand delivered double-digit growth, driven by strong performance in Brazil, supported by price increases, better mix, and successful campaigns during Mother's Day and Valentine's Day. In Hispanic Latam, net revenue grew by 30% in constant currency, despite challenging situations in several countries, with Peru and Colombia being notable contributors.
The Avon brand in Latam experienced a decline of 4% in net revenue in the Beauty segment, while Home & Style saw a decrease of 28.5% in Brazil, aligning with the company's portfolio optimization strategy. Adjusted EBITDA margin for Natura & Co Latam improved by a solid 250 basis points to 13.3%, benefiting from strong gross margin improvement.
For Avon International, revenue achieved BRL 1.5 billion ($302.2 million) down 1.3% in constant currency (a decrease of 8.1% in BRL). However, the TMEA and CEE, driven by discipline in executing our higher pricing strategy and improvements in channel’s dynamics (despite the expected hit in the distribution network of -15% YoY due to ongoing changes in the commercial model). The Beauty category was up +3% YoY, while Home & Style continuing last quarter’s trend, with a steep decline amid the planned portfolio reduction of more than 50% of SKUs.
In the second quarter of 2023, The Body Shop reported a decline in net revenue. The company's Q2-23 net revenue reached BRL 800 million ($161.2 million), representing a decrease of -12.5% in constant currency (CC) and -12.0% in Brazilian Real (BRL). The decline in revenue was primarily driven by a mid-single-digit decrease in combined sales of core business distribution channels, including stores, e-commerce, and franchises. This decline was slightly worse than the performance observed in the previous quarter (Q1-23). Its retail sales through the core business distribution channels showed a sell-out Same Store Sales decrease of -3.5%. While this indicates a challenging quarter for The Body Shop, the company remains committed to addressing these challenges and finding ways to improve its performance.
In April 2023, Natura & Co made a significant announcement regarding the sale of Aesop. The company entered into a binding agreement with L'Oréal to sell Aesop for a total enterprise value of $2.525 billion. The closing of the transaction is expected to occur in the third quarter of 2023. As a result of this agreement, Aesop has been classified as discontinued activities.
Despite the impending sale, Aesop demonstrated strong performance in terms of revenue. In the second quarter, Aesop achieved revenues of BRL 759 million ($152.9 million), representing an impressive growth of +16.4% in constant currency (CC) and +14.2% in Brazilian Real (BRL). The growth was driven by all regions, except for the Americas, where there were no significant store openings to boost year-over-year (YoY) growth.
Asia, in particular, experienced sequential revenue growth (+18% in Q2) compared to the previous quarter (+14% in Q1). This growth was influenced by Korea's return to growth amid an improving macroeconomic environment and internal efforts to enhance retail performance. The company's signature stores also played a crucial role, totaling 293 in Q2-23 (an increase of 18 over the last twelve months) and achieving a same-store sales growth of +8%. In addition, China is slightly pressuring profitability as the Group ramp up store opening schedule.
From a distribution channel perspective, retail and wholesale channels showed solid growth, although e-commerce performance was relatively softer. Combined same-store sales growth, including retail, department store concessions, and Aesop.com, reached +8%. The fragrance category continued to outperform Aesop's overall top-line growth, following the trend observed in previous periods.
Fabio Barbosa, Group CEO of Natura & Co, expressed satisfaction with the second-quarter performance, which built upon the positive momentum observed in the first quarter. He highlighted the low-single digit top-line growth at constant currency and the significant improvement in adjusted EBITDA margin. The improvement in gross margin, driven by mix effects, partially offset by investments and inflation, played a crucial role in the positive outcome. Barbosa also mentioned that net income was still impacted by high financial expenses, which are expected to be addressed upon closing the sale of Aesop, anticipated to occur in Q3-23.
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