Avon Products (AVP) shares jumped nearly 9 percent in late trading yesterday after the beauty company announced an 80 percent gain in first-quarter earnings. Lower costs helped offset slumping revenue, which fell 9 percent from a year ago.
That doesn't mean Avon will buck the terrible retail environment we're in right now. Shares are still down more than 12 percent so far this year, and while analysts say the company may be in a better spot compared to higher-end rivals like Estee Lauder (EL), a bet on Avon is basically a bet that the weak economy will put more salespeople on the street. "With unemployment increasing dramatically in the United States and recessionary fears spreading, promoting Avon's income-generating opportunity will be the most critical focus in 2009," CEO Andrea Jung said on a conference call.
Citigroup analyst Wendy Nicholson lowered he price target on Avon to $25 from $29 a share, but kept her "buy" rating on the stock, saying in a note that the near-term headwinds for the stock are priced in and that cost cutting could drive margins higher.
For more on Avon and other beauty related stocks see 5 Beauty Stocks in an Ugly Market