Avon Calling For Change

A good look in the mirror might help Avon’s management.

Andrea Jung, the chief executive of the $8 billion cosmetics company, has twice failed to turn it around. Never mind the federal investigation into possible wrongdoing that was disclosed last week; Avon’s performance even before then had been dismal.

The company’s stock is down more than 20 percent since the beginning of the year, substantially underperforming peers like L’Oréal and Revlon. A big part of the decline came after its quarterly report on Thursday.

But Ms. Jung can’t blame the current tough economy, even if it has not helped matters. She presided over several years of strong performance after becoming the chief in 1999. The company’s shares have significantly underperformed the broader market and major rivals at least since 2005, when Avon announced plans to flatten the management structure, streamline the supply chain and outsource certain services.

Ms. Jung took the restructuring scalpel out again four years later, but failed to produce lasting results. Sales growth ran in double digits early during her tenure, but won’t even reach mid-single digits this year. Moreover, she seems to accept that her strategy in one big market, Brazil, needs to be rethought, and the company’s performance in America has been disappointing, too.

Some investors may have been reluctant to rock the boat given Avon’s lucrative 5 percent dividend yield. But a squeeze on the company’s free cash flow has put that in doubt. The $37 million of free cash generated in the first nine months of this year is well short of the dividend outflow of $302 million in the same period. Dipping into cash holdings to maintain the payout may not be a sustainable approach.

Avon’s new chief financial officer, Kimberly Ross, will have that to grapple with when she starts on the job next month. In addition, she and her colleagues will have to handle a Securities and Exchange Commission inquiry into whether the company broke bribery and disclosure laws.

Ms. Jung said the buck stops with her. After 12 years in charge and two ineffectual efforts to revamp the company, the Avon board should hold her to the statement and give someone else a chance.

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