In the second quarter, the company increased advertising 74%, to $93 million, compared with the same period a year ago. Avon rolled out its "Hello Tomorrow" advertising campaign including: promotion of Avon's flagship Avon Color cosmetics, specifically, Ultra Color Rich Lipstick; and Anew Retroactive anti-aging skin care products; and Representative recruitment advertising in the U.S.
In the second quarter, the company also invested $30 million incrementally to enhance the Representative Value Proposition through continued implementation of its Sales Leadership program, increased incentives and web enablement.
"We continue to track toward our planned $100 million of incremental investment in the Representative Value Proposition this year," said Ms. Jung. "Given the success we are seeing in our business, we decided to increase our full-year advertising investment to $375 million, 50% above 2006's level, versus our earlier plan of a 35% increase."
The company said that second-quarter 2007 operating profit of $187 million was 17% lower than 2006's $225 million due to the aforementioned increased investments in advertising and the Representative Value Proposition, as well as costs associated with its Product Line Simplification program. Second- quarter 2007 operating margin was 8.0%, versus 10.8% in the prior-year quarter.
The quarter's effective tax rate of 32.3% was higher than 2006's rate of 30.7%. The 2006 rate benefited primarily from a one-time favorable tax refund.
The company further stepped up the pace of its share repurchases during the second quarter, buying approximately $280 million of stock, to bring repurchases for the first six months of 2007 to $410 million, and total program purchases to $758 million of the current $1 billion authorization.
At quarter end, Avon's net debt had increased $577 million from the year- end level. Net cash used by operations was $1 million through six months of 2007 compared with $289 million of cash provided by operations in the same period of 2006, due primarily to increased payments in 2007 for incentive- based compensation and inventory purchases.
marketing@alchempro.com
