Natura Cosméticos (NATU3) Q2 2024 earnings summary

Executive summary

• Q2 2024 consolidated net revenue rose 5.7% YoY in constant currency, driven by strong growth in Natura Brazil and a recovery in Avon Brazil, partially offset by declines at Avon International.

• Adjusted EBITDA reached BRL 804 million (10.9% margin), up 14% YoY, with margin expansion in Latam and contraction at Avon International.

• Net loss for Q2 2024 was BRL 859 million, mainly due to a one-off non-cash write-off of BRL 725 million in deferred tax assets related to Avon Products Inc.'s (API) voluntary Chapter 11 restructuring in the US.

• Underlying net income (excluding non-operational effects) was BRL 162 million, a significant improvement from a loss of BRL 219 million in Q2-23.

• API filed for voluntary Chapter 11 in the US to address debt and liabilities; Natura &Co, as API's largest creditor, is supporting the process and bidding for Avon's non-US operations, with no expected impact outside the US.

Financial highlights

• Q2-24 net revenue: BRL 7.4 billion (+5.7% YoY in CC, +5.4% in BRL); gross margin improved to 64.5% (+50 bps YoY), led by a 110 bps expansion in Latam, while Avon International's margin contracted by 220 bps.

• Adjusted EBITDA margin expanded by 80 bps YoY to 10.9%, mainly driven by Latam performance and operational efficiencies.

• Free cash flow from continuing operations was BRL -675 million, an improvement of BRL 180 million YoY, mainly due to higher adjusted net income and lower financial expenses.

• Net debt (excluding leasing) increased to BRL 2.1 billion, mainly due to dividend payments and seasonal working capital investments; leverage ratios improved YoY.

• Underlying net income improved to BRL 162 million, supported by higher Adjusted EBITDA and lower financial expenses.

Outlook and guidance

• Management expects leverage to decrease significantly in H2 as cash generation improves and EBITDA growth continues.

• Strategic priorities remain focused on margin expansion, cash conversion, and sustainable topline growth, with ongoing investments in marketing, innovation, and growth projects.

• No impact is expected on Avon's operations outside the US following API's Chapter 11 filing; integration of Avon and Natura brands in Latam is progressing well.