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Avon Sees 13% Drop in 1Q

May 5, 2009

Company plans to offer value to shoppers next

Avon Products, Inc. reported first-quarter 2009 total revenue of $2.2 billion, 13% lower than that of 2008's first quarter. Beauty sales in the first quarter 2009 were 12% lower versus the prior-year period, but increased 5% on a local-currency basis. Beauty units increased 2%, and units overall were flat with the prior-year quarter. Active representatives grew 7%.

Andrea Jung, chairman and CEO, remarked, "We plan to leverage the inherent advantages of our direct selling business model during this time of uncertainty. We are offering consumers an increased assortment of 'smart value' products--great quality products at affordable price points--which contributed to beauty unit growth of 2% in the quarter. We are also aggressively promoting our representative earnings opportunity to a wider audience. The early strength of this new recruiting effort reflects the growing relevance of the Avon earnings opportunity.

"Our goal to balance unit volume growth with pricing was successfully met in the quarter as we captured a net per unit increase of 3% year over year. Our investments in brand advertising and innovation continue to pay off, even in this difficult consumer environment.

"From an earnings perspective, foreign exchange significantly pressured first-quarter profit, as expected. We are taking aggressive action to lessen the foreign-exchange impact throughout our value chain, the benefits of which should be stronger in the second-half of 2009.

Ms. Jung concluded, "Despite the current challenges of foreign exchange and the global economic recession, we see this as a moment of opportunity. We intend to leverage our unique brand and direct-selling channel advantages in order to gain market share. Coupled with our multi-year turnaround strategy, we will use this moment to emerge a stronger and more competitive company in the future."

On a category basis in the first quarter, Avon's Beauty sales decreased 12%, but were up 5% in local currency. In terms of Beauty category local-currency growth, color cosmetics, fragrance and personal care grew 10%, 9% and 8%, respectively, while skin care decreased 4%. Color cosmetics and personal care, which have lower relative price points compared with fragrance and skin care, benefited from new launches, such as Ultra Color Rich 24K Lipstick, as well as from strength in Naturals personal and hair care line. On a reported basis, color cosmetics, fragrance, personal care and skin care sales-growth rates were -9%, -10%, -9% and -17%, respectively.

First-quarter 2009 expenses included costs associated with the company's 2005 and 2009 restructuring programs of $5 million and $10 million, respectively. Operating profit was $168 million - 43% lower than the prior-year quarter.

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