Avon 2001 Annual Report Download - page 4

PAGE 27
Results of Operations–Consolidated
%/Point Change
Favorable (Unfavorable) 2002 vs. 2001 vs.
2002 2001 2000 2001 2000
Net sales $ 6,170.6 $ 5,957.8 $ 5,681.7 4% 5%
Total revenue 6,228.3 6,000.3 5,722.6 4 5
Cost of sales 2,344.4 2,268.4 2,171.3 (3) (4)
Marketing, distribution and administrative expenses 2,979.6 2,889.5 2,761.4 (3) (5)
Special charges, net 34.3 94.9 — 64 —
Contract settlement gain, net —(25.9) — — —
Operating profit 870.0 773.4 789.9 12 (2)
Interest expense 52.0 71.1 84.7 27 16
Interest income (15.2) (14.4) (8.5) 6 69
Other (income) expense, net (2.4) 27.0 21.5 — (26)
Net income 534.6 444.6 479.1 20 (7)
Diluted earnings per share 2.22 1.85 1.99 20 (7)
Gross margin 62.4% 62.2% 62.1% .2 .1
Marketing, distribution and administrative expenses
as a percent of Total revenue 47.8% 48.2% 48.3% .4 .1
Special charges and Contract settlement gain as a
percent of Total revenue .6% 1.1% — .5 (1.1)
Operating margin 14.0% 12.9% 13.8% 1.1 (.9)
Effective tax rate 35.0% 34.8% 29.2% (.2) (5.6)
Units Sold 13% 9%
Active Representatives 10% 10%
Net Sales > Net sales growth in 2002 was driven by an
increase in units and the number of active Representatives,
with dollar increases in all regions except Latin America,
which was negatively impacted by weaker foreign exchange
rates resulting from economic and political uncertainties
in the region. Excluding the impact of foreign currency
exchange, consolidated Net sales increased 11%, with
increases in all regions.
The 2002 Net sales increase was driven by a
5% increase in Beauty sales (driven by strong increases
in color, skin care and personal care categories) and, to a
lesser extent, a 27% increase in Health and Wellness sales.
Net sales growth in 2001 was driven by an increase
in units and the number of active Representatives, with
dollar increases in all regions except the Pacific. Excluding
the unfavorable impact of foreign currency exchange, con-
solidated Net sales increased 10% in 2001, with increases
in all regions.
Other Revenue > Other revenue includes shipping
and handling fees billed to Representatives, which
totaled $57.7, $42.5 and $40.9 in 2002, 2001 and
2000, respectively.
Gross Margin > Gross margin improved in 2002 due to
increases in North America (.8 point, which increased con-
solidated gross margin by .3 point), partially offset by
decreases in Europe (1.2 points, which reduced consoli-
dated gross margin by .2 point) and the Pacific (.4 point,
which reduced consolidated gross margin by .1 point).
Gross margin in Latin America was flat. Additionally,
gross margin benefited from greater contributions from
countries with higher gross margins (which increased
consolidated gross margin by .2 point). The gross margin
improvements discussed above include net savings across
all geographic segments associated with supply chain
Business Transformation initiatives, which favorably
impacted consolidated gross margin by .5 point. Gross
margin in 2002 and 2001 included $2.0 and $2.5,
respectively, of charges related to inventory write-downs,
which were included in the Special charges (see Note 13,
Special Charges).
Gross margin improved in 2001 due to increases
in the Pacific (.7 point, which increased consolidated
gross margin by .1 point) and Latin America (.2 point,
which increased consolidated gross margin by .1 point).
Gross margins in North America and Europe were flat.
Gross margin in 2001 included $2.5 of charges related
to inventory write-downs, which were included in the
Special charges (see Note 13, Special Charges).
See the “Segment Review” sections of Management’s
Discussion and Analysis of Financial Condition and
Results of Operations for additional information related
to changes in gross margin by segment.
Marketing, Distribution and Administrative Expenses >
Marketing, distribution and administrative expenses
increased $90.1 in 2002 primarily due to a 4% sales
increase (which resulted in an increase in expenses of
approximately $69.0), an increase in consumer-related