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Avon Products (NYSE:AVP)

Q2 2014 Earnings Call

July 31, 2014 9:00 am ET

Executives

Amy Low Chasen -

Sherilyn S. McCoy - Chief Executive Officer and Director

Kimberly A. Ross - Chief Financial Officer and Executive Vice President

Analysts

William Schmitz - Deutsche Bank AG, Research Division

Wendy Nicholson - Citigroup Inc, Research Division

Christopher Ferrara - Wells Fargo Securities, LLC, Research Division

Lauren R. Lieberman - Barclays Capital, Research Division

Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division

Olivia Tong - BofA Merrill Lynch, Research Division

Mark S. Astrachan - Stifel, Nicolaus & Company, Incorporated, Research Division

Constance Marie Maneaty - BMO Capital Markets U.S.

Stephen Powers - UBS Investment Bank, Research Division

Javier Escalante - Consumer Edge Research, LLC

Linda Bolton-Weiser - B. Riley Caris, Research Division

Operator

Good morning. My name is Holly, and I will be your conference operator today. At this time, I would like to welcome everyone to Avon's Second Quarter 2014 Earnings Conference Call. [Operator Instructions]

I'll now turn the conference over to Amy Chasen, Group Vice President, Investor Relations. Ms. Chasen, you may begin your conference.

Amy Low Chasen

Thank you. Good morning, and thank you for joining us to review Avon's second quarter 2014 results. With me today on the call are Sheri McCoy, Avon's CEO; and Kimberly Ross, our Executive Vice President and CFO. Sheri will give her perspective on our progress and answer some of your most frequently asked questions, and then Kimberly will take you through our second quarter results. Then we will have our usual Q&A session.

With that, I refer you to the cautionary statement in today's earnings release, as well as to our non-GAAP reconciliation, which is available on the Investor Relations section of our website. As usual, on the call, we will focus on these adjusted non-GAAP financial measures.

I'll now hand the call over to Sheri.

Sherilyn S. McCoy

Thank you, Amy, and thank you for joining the call today. There are 2 topics I will cover in my opening remarks: first, my perspective on the quarter; and second, I will address a few key questions that come up frequently when we meet. And then Kimberly will take you through the details of the quarter.

To start, the second quarter results were not where I want to see them. Kimberly will provide more detail, but to summarize, our revenue was $2.2 billion, down 3% year-on-year in constant dollars, and operating margin was at 8.5%, down 100 basis points year-on-year. Active Representatives we're down 6%. While we continue to make progress, it is slower than I would like to see.

Our financial performance is not yet benefiting significantly from the actions we've taken as part of our turnaround journey. We also continue to be negatively impacted by economic headwinds in several key markets.

From a geographic perspective, North America, while declining in revenue, is making good progress on cost management and landed where we expected. EMEA performed slightly better than we anticipated, and Latin America was below our expectations. While we anticipated soft performance in Mexico, Brazil came in lower than we expected. This was a result of 2 issues: First, we underestimated the degree of impact from the World Cup, as we had lower engagement from the field and consumers; second, we experienced some demand forecasting issues in the quarter, primarily related to our new innovation launches. The good news is, is that we have great products in the pipeline. The bad news is that we still need to improve demand forecasting. These issues are actively being addressed by the Brazilian management team.

In the quarter, we continued to take actions to improve our cost base. As an example, while North America was down 20% in revenue, we essentially achieved breakeven in the quarter. Getting the cost structure rightsized to the business was a top priority for the North American team. They now have a much more manageable cost basis, with still more work ahead, but I'm pleased with their progress.

And as you saw in our recent announcement, we have also taken significant actions to reduce cost of corporate overhead. Along with the cost reductions, we've taken complexity out of the system and clarified roles and responsibilities across the market, regional and global corporate teams. Having this clarity simplifies how we work together. It will also help us to ensure that cost doesn't creep back into the system.

To sum things up, the second quarter was another tough one. In our earlier calls, we indicated that the first half of the year would be challenging. As we move to the second half, we expect to show improved performance. This is based on our expectation for continued progress in representative engagement, particularly in a few key markets, like Russia and Mexico.

As we enter into the second half of 2014, I thought it would be helpful to give perspective on our progress and address some of the key questions that you've raised in our meetings. One of the questions that comes up on my calls with you and during my visit with investors is, how am I feeling about the progress we are making and, specifically, how do I feel good about our progress, or why do I feel good about our progress?

Let me start by sharing with you the approach or process we take to evaluate and deliver improved performance in our top markets. For every market, we ask the same 3 questions: First, do we have the right management team in place? Second, are we executing well against the critical processes? And third, are we driving representative engagement? We have been systematically addressing these 3 areas across our top 12 markets, which represents about 80% of our revenue. Before giving you an example, let me provide you with more insight into what is included in each of these questions.

To start, in terms of management, it's broader than just the general manager. It includes the head of sales, the head of marketing and leaders of a few key functions. On execution of critical processes, I'm referring to field management, commercial marketing and product supply. And finally, with respect to representative engagement, I'm looking broadly at more than just the number of representatives. I look at recruiting, activation, retention and overall satisfaction.

I thought it would be helpful to go back in time and look at the test we solved in the U.K. I will go into more detail here to illustrate the process we solved in a given market. In late 2012, the U.K. was declining mid-single-digits, and had been for a couple of years. We were losing representatives and saw a shrinking average order. We made a change in management, putting in place a new GM and new head of sales, both of whom had strong direct selling and leadership experience within Avon. They brought together a very seasoned management team, with a good mix of Avon and external perspectives.

The U.K. team needed the better part of 2 quarters to fully diagnose the situation, looking at both internal and external factors. This gave them a clear picture into the root causes of their performance issues, to identify what they needed to do to stop the decline and ultimately get back on a path to growth.

They developed a strategic action plan and determined that the single most important thing was to improve execution. They needed a clear plan, operational discipline and accountability. While sales was the primary focus, plans were integrated across marketing and supply chain as well. The general manager and her team tackled this in a very systematic way. They brought discipline back into the field. This started with clear roles and trained for their area sales managers, who were provided with very specific steps to build their areas' business. Based on insights from their diagnosis, the team knew the key was to improve contact and tracking for new representatives.

Face-to-face contact was shown to be the most effective, followed by phone and SMS contact. They adjusted all 3. The U.K. company call center reached out to many new representatives after they placed their first and third order. And they found that those contacted after placing their first order showed a 12 percentage point increase in placing a second order versus those who were not contacted. Representatives contacted after their third order placed a fourth order at a 30 percentage point higher rate than those who were not contacted. Those orders were also GBP 30 higher on average than from -- those representatives who were not contacted.

The U.K. team also improved the data flow to the fields. They implemented an online database in technology, so their sales leaders and representatives are now able to access data and gain better visibility to the potential in their territory. This enables them to pursue and meet specific customers in their area. The results were more territory appointments and, importantly, improved productivity and satisfaction of new representatives.

The commercial marketing team also worked closely with the field to engage both representatives and consumers. The U.K. has strengthened processes that enabled them to consistently execute each campaign, and the U.K. team is among the best in Avon, with their 360-degree surround sound launches of their biggest innovations. For example, they had strong uptake with both the AF-33 and ANEW Defense skincare launches by activating representatives and consumers through tailored creative field engagement, sampling, PR and digital advertising. Importantly, this is an example that the right management team, plus strong execution, is necessary to drive representative engagement. The U.K. is steadily improving representative engagement by making it easier for her to earn and do business with Avon. This has been re-instilled in their culture. The team takes great pride in improving the representative experience, and it's paying off.

This quarter, they have stopped declines in revenue. They have a lot more work to do, but they've made tremendous progress. It's important to note that the U.K. was not a quick fix. It has taken the U.K. team more than 18 months to get the business back on solid footing. The good news is that as they strengthen representative engagement, they are better prepared to invest in the brand and bringing in new representatives and customers. I'm confident that they are on track to get this business back to a competitive position. The U.K. is a helpful example for 2 reasons: First, it provides a view into the type of progress I am seeing; and second, it highlights the secrets for attacking and fixing our more challenging markets.

First, it starts with having the right management team in place. This is particularly important for Avon, as it is a very management-intensive business. Second, we need strong execution of fundamental processes around field management and commercial marketing. And third, when we execute well, we drive representative engagement by ensuring that representatives have a positive interaction with Avon. I know that you heard me say this many times, but when she is successful, Avon is successful, and we are clear on the systematic approach required to help her succeed.

Let me now anticipate the obvious question: What will I see, as I look at our top 12 markets through a similar lens of these 3 areas, management team, execution and representative engagement? I feel good that we've made a lot of progress in the area of management and talent. We are improving in execution, but clearly not where we need to be. And we have mixed performance on our representative engagement across our markets.

To be more specific on talent, we conducted a thorough assessment of our management teams in our top 12 markets. We now have more than 75% of the markets with strong leaders in the critical management team roles. And we've done this with a good mix of direct selling expertise, what I call the best of Avon, and external hires where we had gaps. And about 2/3 of our critical roles are filled with leaders who have direct-selling experience. While we have good teams in place in our key markets, I would note that a number of these individuals are relatively new in their roles, so we know this is a bit of a learning curve for them. As we saw in the U.K. and other markets, this will take time, but I'm confident we're headed in the right direction.

As it relates to improving execution in field management and commercial marketing, we are making solid progress in commercial marketing. We've improved our product offerings across our base business, while strengthening new product introductions in our core categories: Fragrance, Color and Skincare. We're integrating Fashion & Home as part of our Beauty with a big B strategy to provide incremental earnings to the representative in a way that enhances our brand. There's still an area of opportunity in pricing execution, but all regions are making headway in building capabilities, and we are seeing some progress.

If I had to place a figure on where we stand on execution, it would naturally be lower than the 75% figure I gave you for the management team. I would estimate that, as of today, we are consistently executing well in about half of our top 12 markets, and we know where the issues are in the others. To me, the area where we must continue to improve is execution in the field. This is my #1 concern globally and a crucial focus for us. Field execution is a key driver in representative engagement and ultimately, the number of Active Representatives.

Active Representatives remains a critical KPI for Avon. The representative is at the heart of our company. However, it is not just about the number of representatives we have, but their engagement with Avon as well. You are all aware that we are not where we need to be with Active Representatives. And hopefully, by detailing the approach we take to underperforming markets, it is explains why representative engagement and metrics you see quarterly are, in my opinion, critical, but a lagging indicator of our progress.

So what are we doing to improve representative engagement? It begins with an understanding of the key drivers of engagement, and then fixing what's not working. We've implemented a representative engagement survey in our top markets that identifies the key issues by type of representative. The issues generally fall into 2 major buckets: ease of doing business with Avon and the potential earnings opportunity. For each top market, we've assessed strength and challenge areas. And the markets have put plans in place to address the issues, some similar to what I mentioned in the U.K.

For example, in some of our markets, we identified service challenges and, specifically, the returns policy as a key issue impacting representative retention. So we implemented a simplified returns and credit policy to enable them to spend more time growing their business.

Representative earnings opportunity was also a factor in some markets. In Eastern Europe, we introduced a new sales leadership model to enhance sales leader progression by creating smaller steps for title progression. We provided individual plans to each candidate to help them reach the next title and also improve bonus programs. So we -- early results are positive, and we continue to roll out this program to other markets.

We also know it is not a one-size-fits-all approach. From our surveys and from our workers' representatives, we can segment our approach to better serve the different needs of our representative base. So we've begun implementing different motivators for different groups of representatives. Both Turkey and Argentina had been successful with their segmentation strategies. I visited both of these markets recently and was really impressed by how the teams are using insights into a representative base to segment and drive better engagement.

Across all of our markets, we are taking a systematic approach to better understand our representatives and what they need to succeed. Having this level of consistency and discipline will improve representative engagement. While this does not yet translate into improved financial results, we are doing the necessary things to get this back to a healthy and growing Active Representative base.

So to answer your questions, yes, I see progress. We know what the issues are, and we know what we need to do to fix them, and we're taking a very systematic and disciplined approach market-by-market.

The second question I would like to address is about the U.S. I'm often asked, are there secular problems in the U.S., and are we adequately addressing the issues? Would we be better off exiting the U.S. market? Let me start by saying the U.S. is a very important market for us. It's a large and important beauty market. We see a number of our direct-selling competitors doing well in this market. And while we have a long road ahead to get this business back to where it needs to be, in 2015, I anticipate that the North American business will return to profitability and no longer be dilutive to Avon's operating margin.

How are we getting there? The U.S. is following a similar path to stabilization as we deployed in the U.K. Unfortunately, the U.S. is starting from a far more challenged position. And so it will take time as we fix the things most critical to our representatives. We now have a terrific management team in place, a team who has strong direct-selling capabilities, excellent leadership skills and also team members who bring an external perspective. The team is working day and night to improve execution and, most importantly, execution in the field. The team has diagnosed and is fixing all aspects of representative engagement step by step. Frankly, there's a lot to tackle here as we need to improve all aspects of direct representative experience in the U.S. We've had trouble bringing in and activating new recruits, we've had challenges with our service to our representatives and we've had retention issues.

It's very important to fix the issues rather than simply recruit more representatives into a system that's not working well. You should expect to see a continued decline of Active Representatives, while we improve the representative experience. Over time, this decline will slow, and then stabilize as we move through the turnaround plan.

The North American team has already executed on many of the programs we've shared at CAGNY. They are making good progress on the size of line reductions and have significantly improved internal pricing capabilities. They launched the improved recruiting kit to make the earnings more attractive, improve support for new representatives and enhanced the online recruiting vehicle. Similar to the U.K., the team is bringing a disciplined approach to the field. They have changed the goals and compensation approach with district sales managers and have weekly calls in place to review 4 critical KPIs with each division to strengthen ownership and accountability.

To further accelerate our work here, we recently appointed a Chief Representative Officer for North America, an Avon veteran of 30-plus years, who is working with senior management and the field to fix the critical aspects of recruiting, earnings and overall engagement.

As I mentioned earlier, the team has also executed well in improving the cost base. SG&A is $45 million lower this quarter than last year, bringing the spend more in line with the size of the business. There's more work ahead and strong plans in place to further reduce spend, especially in supply chain.

We know that we need to modernize Avon's business and improve access to our products and our company. To that end, we are launching an upgraded avon.com shopping site for U.S. representatives and consumers in September. We will be introducing this to our sales leaders and district sales managers in August. This will provide representatives with another way to earn by attracting new customers who can order online. Representatives will benefit from this as this gets done 2 ways to sell and 2 ways to earn.

I know the future for Avon is modernizing direct selling, or better said, social selling. The beauty space is ripe for personal connections and recommendations from friends. We have to make it easy for our representatives to do business with us. We're embracing technology so we can modernize and bring in new consumers and representatives. And digital technology, whether it be online recruiting, online ordering, social media, mobile apps for training and placing orders, is the enabler of our future.

The third question I would like to address is the recurring question about our goal: Are they the right ones, and am I confident we'll meet them? Let me start by saying I believe that we have the right goals of mid-single-digit revenue growth and low double-digit operating margin. As you are aware, we looked at the company's new beauty industry, other direct-selling companies and Avon's historic growth and margins in order to establish our objectives. Having said that, I also acknowledge that we are somewhat behind where we thought we'd be at this point. Some of the issues in the U.S. were deeper than anticipated, and we've had a greater influx of macro issues. We still think these are the right goals and they are doable by 2016, but the degree of difficulty is greater today than when we set the goals in late 2012. We will know a lot more about how we are tracking against our goals over the next 6 months, as we improve execution in our key markets and drive improved representative engagement. We will also have deeper insights into our progress in North America, which will also have an impact on the timing of reaching our goals. We will be in a better place as we close out the year to provide more information on how we are tracking.

I'll now hand it over to Kimberly for her review of the quarter.

Kimberly A. Ross

Thank you, Sheri. The second quarter was tough, and we clearly still have challenges that we need to address. We are taking steps to turn around the business, and we're making good progress on costs. But the sales recovery is taking us longer than we anticipated.

With that said, let me take you through the details of the quarter. In Q2, constant dollar revenue declined 3%. On a reported basis, revenue was down 13%, negatively impacted by foreign exchange. Units declined 6%, driven by continued weakness in North America. Active Representatives we're down 6%, mainly driven by the continued weakness in North America, but we also saw declines in the other regions as well.

Q2 price/mix was up 3%, with increases in most regions, led by North America due to higher pricing in the U.S. Inflationary pricing in Latin America also contributed. Adjusted gross margin declined 30 basis points to 63%, due to negative impact of foreign exchange, largely in Latin America, as well as in EMEA. Productivity in niche business, supply chain and pricing benefits partially offset this negative impact.

Adjusted operating margin was down 100 basis points to 8.5% in the quarter, primarily due to foreign exchange and deleverage, given the weaker revenue. The adjusted operating margin included about a 40-basis-point benefit for a tax VAT credit in Brazil. The adjusted effective tax rate was 42.7% compared to 34.9% a year ago, which was higher than expected due to an adjustment in the carrying value of our deferred tax balances and out-of-period adjustments and the country mix of earnings.

In the past, I've indicated that you should expect our tax rate to be in the mid- to high-30s, excluding discrete items, and we expect that to remain the case. This high rate is largely due to our overseas earnings not being designated as commonly invested abroad, which automatically results in a higher rate. In addition to the base rate of mid- to high-30s, the country mix of earnings can impact our rate in any given quarter. We are also faced with a situation where, as our business performance remains challenged in some countries, this could impact the valuation of our deferred tax assets, which can result in a higher tax rate as well.

As a result of these issues, it is very difficult for us to provide you with more specific guidance about our expected tax rate, and it could remain volatile through this turnaround, but we are evaluating how we can reduce the tax rate for the future. Adjusted EPS was $0.20 per share compared to $0.29 a year ago.

Turning to Latin America. Q2 revenue was 1% in constant dollars, which was disappointing due to a weaker-than-expected result, primarily in Brazil. The region's growth was favorably impacted by a 1-point benefit from a VAT credit in Brazil, and we are likely to have more benefits from tax credits in quarter 3.

As I discussed last quarter, we adopted SICAD II for Venezuela at the end of quarter 1, but we only update our constant dollar exchange rates on an annual basis, so we won't see the impact on our constant dollar results until Q1 2015. Had we used the SICAD II rate to translate Venezuela results into constant dollars, the region's constant dollar revenue would have been down 2% from the prior year.

Price/mix in Latin America was up 4%, primarily due to inflationary pricing in Venezuela and Argentina. Active Representatives were down 6%, and units were down 3%, primarily due to the declines in Mexico and Venezuela. Brazil constant dollar revenue was up 3%, including approximately 2 points from the VAT credit recognized in quarter 2.

Fashion & Home was up 2%, and Beauty was flat in constant dollars. As Sheri indicated, we experienced some demand forecasting issues in Brazil related to our new-product launches, which are being addressed by continuing to improve our internal capabilities and processes. And we are also working to add more flexibility to our supply chain. In addition, as the quarter progressed, we saw lower activity as a result of disruption from the World Cup. For the second half, the team in Brazil has put programs in place to engage the representative space and in supporting these with field activation. In addition, they have a strong innovation plan. For example, today we're launching Luxe, our higher-end color line that has been successful in Russia and other markets within EMEA. Brazil is launching this with a strong 360-degree program, including PR, field incentive programs and advertising.

While we are focused on internal execution in Brazil, we are also keeping an eye on external factors, given the changing economic and political environment.

Turning to Mexico. Revenue was down 12% in constant dollars, driven by a decline in Active Representatives. While we have made progress in improved pricing and brochure merchandising, the field management process continues to remain a priority. In an effort to improve recruitment, we have launched a new campaign called Beautiful Story [ph], which shares stories from successful representatives.

Taking a chapter from the U.K. example Sheri cited, we are increasing our contact with these representatives to help train and engage them in the business, and we are working to bring back former representatives, as well as focusing our attention on representatives at risk of leaving the business. We are pleased that we've announced a new General Manager for North Latin America, which includes Mexico. He will start on September 1 and comes to us from the CPG world, with many years of experience running businesses in Mexico and elsewhere in Latin America. To the point Sheri made earlier about the importance of a strong management team, his experience is complemented by strong sales and commercial marketing leaders with many years of direct sales selling experience.

Latin America adjusted operating margin was 11.3%, down 210 basis points, which included 80-basis-point benefit associated with bank credit. Operating margin declined due to the negative impact of currency and inflationary cost increases. As we look forward, improvement in Latin America performance is key to achieving our expected second half improvement, led by Brazil and Mexico.

Moving to EMEA. Revenue was flat in constant dollars, with improvements in average order growth offsetting a decline in Active Representatives. The French market is now closed, and this negatively impacted the region's growth by approximately 1 point in Q2. Sequentially, we made progress in Russia in quarter 2, although the business was still down 4% in constant dollars. This was driven by declines in Active Representatives, partially offset by average order improvement. We're starting to see some improvement in Russia because of the changes we have made to our brochure to make it more relevant and to ensure focus on unit drivers. This is now helping to generate representative engagement. In addition, we need effective field incentives. We have also rolled out an advanced Sales Leadership model in Russia, which now has more smaller steps to make it easier for sales leaders to achieve higher level.

Turning to the U.K. We are pleased that we saw growth in this market for the first time since quarter 4 of 2010. Constant dollar revenue was up 1% in quarter 2, driven by improvement in average order, which was partially offset by a decline in Active Representatives. We expect to see continued progress in this market due to the plans that Sheri outlined earlier. Adjusted operating margin in EMEA was 14%, down 190 basis points. The decrease was primarily due to the continued unfavorable impact of foreign exchange.

Looking forward, we are encouraged by signs that we see at EMEA and feel good about actions the team has been taking to fix recent issues around pricing, unit drivers and representative engagement. We expect constant dollar revenue improvement in this region in the second half, assuming the economic and political situation does not deteriorate. However, we expect to see a continued negative impact from the currency on EMEA operating margins in the second half.

Turning to North America. I am pleased that once again this quarter, we were able to offset the impact of declining sales with cost-reduction measures. This region recorded a 20% constant dollar revenue decline, similar to quarter 1 results. A 19% decline in Active Representatives was the key driver. Units were down 29% as a result of a decline in Active Representatives, as well as higher pricing. Constant dollar Beauty sales declined 20%, and Fashion & Home declined 19%. Adjusted North America operating profit was essentially breakeven, with 160-basis-point improvement in operating margin versus prior year. Gross margin also improved due to better price/mix, more specifically, SG&A was down $45 million versus the prior year due to headcount reduction.

In addition to headcount, another example of cost reduction is in the area of brochures, where we made significant progress in reducing expenses this quarter. We have worked aggressively to improve the efficiency across all areas of how we manage the brochure process. This includes being more disciplined when assessing quantity we are printing and optimizing brochure distribution. We have also reduced the number of unproductive flyers, which is something Pablo has spoken about at CAGNY. And we have negotiated better rates on our paper purchases. While we're pleased with the cost savings achieved, we still have a lot of work to do and remain aggressive in our efforts to align the cost structure with the size of the business. We expect Active Representatives to continue to decline before we see the improvement in the representative experience that Sheri discussed.

In Asia-Pacific, revenue declined 9% on a constant dollar basis. Active Representatives declined 8%, while units were down 5%. Adjusted operating margin was 0.9%, down 540 basis points. This was due to the impact of lower revenue on our fixed cost, as well as lower gross margin, due to unfavorable currency and unfavorable price/mix in the Philippines. Asia-Pacific, overall, remains challenging, and we expect results to remain soft in the near term.

Now I'll take you through 3 adjustments we made to our GAAP results in the quarter. As a result of the adoption of SICAD II foreign exchange rate to re-measure the results of Venezuela business, we recorded an $18 million charge from using the U.S. historic dollar cost basis of nonmonetary assets, such as inventory. During the quarter, we also recorded CTI restructuring charges, within operating profit of approximately $51 million pretax. This was largely due to employee costs related to the elimination of approximately 600 positions, primarily in corporate functions in North America. This brings the total number of headcount reductions related to our $400 million savings initiative to approximately 3,700.

Also, in a continued effort to better manage future pension obligations, we offered former employees, who are invested and participate in the U.S. pension plan, a payment that would fully settle our obligations to those participants. As a result of this initiative, we recorded settlement charge of $24 million pretax.

Moving on to cash flow. Net cash used by operating activities was $7 million for the 6 months ended June 30, 2014, compared with net cash provided of $70 million for the same period in 2013, unfavorably impacted by lower earnings. The overall net cash used during the 6 months ended June 30, 2014, was $330 million, which is comparable with the same period in 2013.

Our net debt for Q2 was $1.9 billion, which is up $240 million from here in 2013, primarily due to lower cash balances, partly due to Venezuela. In Q2, we also continued to make progress on working capital, which operationally improved 8 days compared with a year ago. Accounts payable improved 13 days operationally, as we continued to focus on renegotiating payment terms with our vendors. However, inventory was 5 days worse operationally. Working capital and inventory, in particular in Latin America, remain a key area of focus for us, as we work to improve cash flow. And as I've indicated in the past, improving our forecasting ability is key to being able to better manage our inventory levels.

Looking ahead, in the second half, we continued to anticipate constant dollar sales and margin growth. The sales growth will be driven by easier comparisons and expected improvement in some of our key markets, including Russia and Mexico. We are also continuing to adjust our cost structure in order to offset headwinds and improve margin. For the full year, we still expect to make progress towards our margin goal, but top line is likely to be a challenge. I believe that we have set the right financial goals for Avon. However, stabilizing the business has clearly been more challenging than anticipated. Nonetheless, we are continuing to take the necessary steps to improve our financial performance.

With that, I'll hand it back to Sheri.

Sherilyn S. McCoy

Thank you, Kimberly. And just to summarize before we open the line to questions. As anticipated, the second quarter was tough. As we move to the second half, we do expect to show improved performance. The goals we set for ourselves are the right ones. We're committed to fixing the U.S. business. We're beginning to see improvements in execution, and the team is working aggressively to return the U.S. business to profitability in 2015. We are taking a market-by-market systematic approach to improve our performance, with an immediate focus on the top 12 markets. And finally, improving representative engagement is the top priority of the organization. We know the issues, we know what we need to fix and we've now largely got the teams in place to execute.

Thank you. We can now open for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Bill Schmitz.

William Schmitz - Deutsche Bank AG, Research Division

It's Deutsche Bank. You guys, can you just talk -- I think I read to the 10-K, and it looked like there was about 300 basis points of margin hit from currency in the quarter. How do you think that sort of progresses going forward, assuming the spot rates holding? Another part or a different question, on the avon.com website, can you just explain a little bit more how it's going to work, and how you're going to roll it out to the reps in the U.S.?

Sherilyn S. McCoy

So Kimberly will take the question on basis points, Bill, and then I'll come back and talk about the avon.com rollout.

Kimberly A. Ross

Yes. So we definitely had impact from translation, as well as transaction in quarter 2. And I would expect that to be less going forward in quarter 3 and quarter 4. But as I said, we do also have uncertainty of what happens with Russia and the impact on some of the currencies. But how we're -- the way we're looking at it now, we would expect that to be probably 100 basis points less, give or take, going forward.

Sherilyn S. McCoy

And, Bill, for avon.com, we're really excited about this. As I said, we will be launching this in September in the U.S. And we are reviewing it with our sales leaders and our district sales managers in August at the conference. Importantly, we've actually brought a number of our representatives in to help us with how to design this and talk about it. The whole premise is it allows representatives and consumers to go online. The representative can send her customer there, and she gets a benefit from that, so she will get a commission from that. The customer can go right online, and the representative will get that benefit. At the same time, what we know is, as we look at the people that come online, about 2/3 of them are attached to representatives in the data that we have, and another 1/3 come on and order directly from Avon. And so one of the things that we think is important is to continue to modernize our business, make sure we get the brand out there, the name out there. And we will enable our representatives to earn more, and that's why we talk about 2 ways to sell, 2 ways to earn. She will earn, whether it's face-to-face contact or whether the person comes online and orders directly from her. So it's a benefit for our representatives and it's a benefit for Avon. And it's something that we're very excited about rolling out in the U.S. and then will follow in other markets next year.

Operator

And your next question will come from Wendy Nicholson.

Wendy Nicholson - Citigroup Inc, Research Division

Citigroup. Two questions, if I can. Just quickly with the Brazil issues, the execution issues in the June quarter, have those been largely resolved? Or do you see any hangover issue or impact of that in the third quarter? And then just on the U.S. specifically, there was a lot of talk at CAGNY about some of the initiatives and issues in Cinco de Mayo and focusing on the Hispanic community and all that kind of stuff. Did any of those things start to gain traction or take hold in the June quarter? Or are we looking for positive signs of improvement just too quickly?

Sherilyn S. McCoy

Sure. Thanks, Wendy. First of all, on the Brazil service issues, the team has been working very aggressively on this. This was really related primarily to our new product launches. And like I said, we had some -- our Mega Effects Mascara, for example, oversold 3x. So there was no way for us to be able to -- while we didn't forecast it right, because we had not anticipated the pickup, and so that's something that we're going back and looking at for the longer term. When we have big launches like that, how do we get a better sense of what the demand will be? Certainly, we do product testing, so we know the product, how it works. What we have to get better at is understanding when we activate the representatives, getting a better sense of how many units is each representative going to take? How are we going to -- when we promote it, how does that end up in terms of volume? So that's an area where the team has done some short-term things to fix it to make sure we're addressing it. Longer term, we just have to get better on these big launches to make sure we have a systematic process in place to test that. The other piece that we've struggled with, frankly, was we didn't have -- we weren't able to activate our supply chain as quickly, and so we didn't have all the components that we needed to be able to do that. And so the team has actually put [indiscernible] to the places where they have contingency -- better contingency plan so that we have raw materials and we have the right mold. And we have fallback and contingency plans if we oversell. And so, obviously, if we oversell 3x, it's going to be difficult. But we're getting better at that, and the team has short-term actions in place and then longer term, looking at these bigger launches to make sure we understand it more holistically. As it relates to the U.S. Hispanic initiatives, we do have work in place. It's early days. One of the things that Pablo has done is he's actually created 2 different Hispanic regions. It's about 13 divisions that we have that are focused -- actually, 2 divisions with 13 different districts focused on Hispanics, so we have one in the East and one in the West. They've done a lot of graphic things, the susceptible fragrances. And we're starting to get traction there, but it's early days. It's something that he, as you know, he's very passionate about. We have the right leadership in place, where we have Hispanic district sales managers focusing on that business, but it's early days right now.

Operator

Your next question comes from Chris Ferrara.

Christopher Ferrara - Wells Fargo Securities, LLC, Research Division

It's Wells Fargo. I guess, can you talk about what triggered the write-down of the deferred tax assets? And what does that mean about the long-term prospects of profitability, I guess, where that happened?

Sherilyn S. McCoy

So yes, I don't want to get too, too technical on this, and one could get way down into the weeds of it. But obviously, we have to continuously be evaluating our deferred tax asset based on the usability. And as I said in my script, is that when we have some challenges in profitabilities in some countries that can impact the deferred tax asset. So -- and that's what we saw here in this quarter. And there is potential for us to have some additional charges against these deferred tax assets. I will point out that these are noncash charges that are taking place.

Christopher Ferrara - Wells Fargo Securities, LLC, Research Division

Great. And just a quick follow-up. Sheri, you said that half of the top 12 markets are executing well. To put you on the spot, I guess, which of those 6, just for the purpose of tracking, just understanding better which markets besides the U.K., I guess, would you hold out as executing well?

Sherilyn S. McCoy

Yes. I don't want to go into giving a report card on the different markets. What I would say is that they are in different places. Certainly, even Brazil, who had a challenge this quarter, for the last several quarters, has done a very good job and had solid performance and has been executing well. We had a specific issue as it relates to supply chain here. So there are areas where we're going to continue to see challenges. What I would say is I feel confident that we have the right management teams, and they're beginning to show good traction. I don't want to get into a situation where I'm saying this one's working well and this one's not at this point in time.

Operator

Your next question comes from Lauren Lieberman.

Lauren R. Lieberman - Barclays Capital, Research Division

It's Barclays. Unfortunately, my question might fall into the bucket of asking for a report card, but I hope not. I was just curious. You specifically mentioned Mexico expected to get better from here, along with Russia. I feel like Russia, it was clear to me why, with some of the changes in leadership, structure, incentives, things like that. I was curious on the rationale for Mexico. I know you said pricing is better, but beyond that, I wasn't really comfortable why things improved from here in this year, in particular.

Sherilyn S. McCoy

Yes. And so one of the things that we've been focused on in Mexico, first, was making sure that we had the right pricing and the right products from a consumer engagement piece, which is, as you recall back in the third quarter of last year, we had that issue. We corrected that, and we have the right price points and the right merchandising approach for the market. The area that we've struggled with, frankly, has been around the representative engagement. And the representative engagement piece is a combination of making sure we're bringing people in and, at the same time, making sure that we're not losing people out the other side. The team has put advertising on air back in the June time frame, and it continues through the second half to actually talk about the Avon proposition and bring people into the business. We've put a lot more focus on new product -- new representative support, where we have people working closely with the representatives as they come in. And at the same time, we have targeted efforts to people who we feel might be in jeopardy of leaving the business, to make sure we're incentivizing them, and looking at a reinstatement plan for people who have left and bringing them back in. So the focus is to continue to show improvement as it relates to the representative piece. That's critically important for us as we exit the year. And so that's really where we have a lot of energy and focus from the management team. And the team there has been working on that for the last -- diligently, for the last 6 months, seeing good improvement, bringing people in. What we need to do is make sure that we're getting them up and running, so that's our area of focus.

Lauren R. Lieberman - Barclays Capital, Research Division

Great. And then just following on that, because you mentioned advertising on air in Mexico, where else have you stepped up advertising? Because that was something that surprised me this quarter, was advertising being up so much.

Sherilyn S. McCoy

Some of those were in Latin America, and we had a little bit in Asia-Pacific and Australia. But if we look at our year-to-date advertising versus prior year, we're basically flat versus prior year. As we look at -- or down -- slightly down, right, slightly down versus prior year. As we look at the advertising piece, it really relates to where our new product launches are. And so even -- as Kimberly mentioned, Luxe in Brazil, we will support that with advertising. And so you will see ups and downs as it relates to our new product launches because we're timing it -- our advertising is timed to that.

Operator

Your next question comes from Ali Dibadj.

Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division

I'm from Bernstein. So I have 2 questions. One is -- and, Sheri, very much appreciated the deep dive in the U.K. example and the kind of 3 questions that you ask in every regions, so management, execution and rep engagement. I'm wondering if you could address some of the questions not there, sort of bigger questions, that I'm assuming you ask, things about the structure, things about brand equity, things about sales model, i.e., are you a direct seller or are you a beauty company? Those types of bigger questions perhaps, because the other ones are much more granular. And it leads to my second question, and we've heard a couple of times from you guys, "It's taking a little bit longer than we anticipated," but I'm still struggling in understanding why, so what's driving that?

Sherilyn S. McCoy

Okay. So, Ali, just the question around Beauty and channel, I see the essence of our company. We are a beauty company, but we also have a very special and unique distribution channel, and they're intertwined. I mean, our representative is at the heart of the business. She actually is the ambassador for our brand. If you look at media spend, we should be thinking about our 6 million representatives and how they drive our business because they are really the ones that activate it. And so I see it as both, and we need to make sure that we are supporting and serving our representatives. But we're also a very strong beauty business, and that's why people come to Avon, and that's why people know Avon. And I think, as I talked about the importance of getting the right management team, execution, and then getting representative engagement, that leads to brand health and brand energy. And so that's critically important to us. As it relates to your second question -- I'm just trying to remember.

Kimberly A. Ross

It's timing.

Sherilyn S. McCoy

Oh, timing. Second question as it relates to timing, why it's taking so long, it really has to do with getting the right management team in place and making sure that they understand and diagnose the issues, making sure they have the right people in place as it relates to execution, and that's around the commercial marketing side and the field side. The field is critically important because that's where we drive representative engagement. But they also need great products to sell. They need to be energized at each campaign, and that level of discipline is critically important. It has to happen on the ground, it has to be driven by the general manager, the head of sales, the head of marketing in those different countries. And it's taking us some time to get those people in place, and as I said, we have about 75% from a management team perspective, and we're about halfway there on execution. And frankly, I'd love to see it faster, and I know the teams in the markets would love to see it faster. The teams are working hard to do the right things to turn this business around, and we are very confident we'll do it, but it's taking us longer than we'd like. Thanks for your question.

Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division

Well, so that's -- so sort of, it's very helpful in context. But you're saying it's taking faster than you think, so I guess that a turnaround takes a while. But I'm trying to understand what is it that you guys anticipated happening faster that's not? Is it finding the right talent? I mean, what is it that you're surprised by that's taking longer than you think from your perspective?

Sherilyn S. McCoy

Well, I think it does take time to get the talent in place and get the teams operating as a team. The other thing that I would comment on that surprised us relative to the time frame from the goal is I do think U.S. was more challenged than I anticipated when we set the goals. And the second thing I would say is we have had -- we anticipated we'd have some macro issues. We didn't anticipate the level that we've had. And so those were the 2 things relative to the timing piece. But it is a process and it is a turnaround. And we're confident we're going to do it, and we're making great progress, from my perspective.

Operator

And your next question comes from Olivia Tong.

Olivia Tong - BofA Merrill Lynch, Research Division

It's Bank of America Merrill Lynch. Just first, quickly, you detailed what the impact of translating at SICAD II would have been on sales, but what about on EPS? And then just following up, on the U.S., you're several quarters in now, and you made great progress on cost, but it's still not clear how you're going to stabilize the revenue base. So can you talk through some of the steps that still need to be taken, and what changes you're making in your approach, particularly when I think about somewhere like Brazil, where you've had some forecasting issues, some -- and supply chain issues, and that's one of the areas where you have one of your newest plants. So I'm particularly surprised that that's an issue in Brazil. And if the U.S. gets sort of back to a little bit of improvement or less declines in sales, can you satisfy that demand if that happens?

Sherilyn S. McCoy

Sure, so just talking -- I'll talk first about the U.S. market. The key to driving revenue is to bring in more representatives and have them engaged and activated with the business. That's the #1 thing that we need to do. We have been very focused on the cost side. Pablo and his team have now been extremely focused on the field. And we've made changes in the field in terms of how we compensate, so the district sales managers have 4 critical KPIs. They get compensated by campaign if they hit those KPIs, and they don't get the same level of bonuses if they don't hit it. So we've looked at that from that standpoint. And the KPIs have to do with bringing new representatives in, helping people place a second order, making sure that we're keeping people and not losing people, so very specific on that. At the same time, we are fixing the brochure. We've made a lot of changes there and changes in pricing to get people excited about buying Avon products. So that helps us from a representative perspective. The overall service challenge, in your reference to Brazil, Brazil's issue specifically was more around -- we just actually did better on some of our new products than we anticipated, and we weren't prepared for that. As it relates to the U.S., we have the capability to supply. In fact, one of our challenges is, in some cases, we probably have an opportunity to fill up our plants. So that is less of an issue relative to what we saw in Brazil. And I'll turn it to Kimberly now for the SICAD question.

Kimberly A. Ross

Yes. If we look at it, overall, it's not that material on profit at the end of the day. So now, at the SICAD II rate, it's about 1% of profitability for the group.

Operator

Your next question comes from the line of Mark Astrachan.

Mark S. Astrachan - Stifel, Nicolaus & Company, Incorporated, Research Division

It's Stifel. Just following up on the Venezuela question, could you talk about your expectation for that country's contribution to revenue growth in the back half of the year?

Sherilyn S. McCoy

Again, if you look at Venezuela, especially on the SICAD II basis, it really becomes pretty small for the overall group. What we do expect in Venezuela, I would expect inflation to continue to impact the numbers there. It has been a challenge, I will say, with regards to overall being able to get the raw materials and the imports necessary. But with that said, I think we secured what we need for the second half of the year. But again, especially if you look at Venezuela now at the new exchange rate, it's really not that material for the group at all.

Mark S. Astrachan - Stifel, Nicolaus & Company, Incorporated, Research Division

But are you using the old exchange rate to measure currency neutral growth through the back half of this year and then it will revert to SICAD II beginning next year?

Sherilyn S. McCoy

Yes, that's correct. That's correct.

Mark S. Astrachan - Stifel, Nicolaus & Company, Incorporated, Research Division

So that contribution in terms of price increases, which you saw in the second quarter, first quarter, should continue in the back half of the year before it normalizes into next year, is that right?

Sherilyn S. McCoy

Yes, that is correct. So you will continue to see the inflationary pricing impacting the constant dollar through the second half of this year from Venezuela. And then, for next year, it becomes immaterial. I think one of the questions is volume relative to make sure we can supply, given the issues in the country. So that would be the one area that we have to stay close to and watch.

Mark S. Astrachan - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay, great. And then just one other question on Brazil. Can you talk about how you're planning to combat Natura entering Fashion & Home?

Sherilyn S. McCoy

Well, we have a great lineup in Fashion & Home and, certainly, we're entering the holiday season, and that's an area of focus for us. One of the things we will continue to do is make sure that we have relevant products at the right price point positions as a beauty offering, so we will continue to do that. I believe that we will continue to do it through the brochure. I'm not sure that Natura is going directly through the brochure at this point in time, so that is also a difference versus what we do today.

Operator

Your next question comes from the line of Connie Maneaty.

Constance Marie Maneaty - BMO Capital Markets U.S.

BMO Capital. I have a question. I just want to make sure I understand what you said about the U.K. that this was the first sales increase since some time in 2010. Is that correct?

Sherilyn S. McCoy

Yes. Fourth quarter 2010.

Constance Marie Maneaty - BMO Capital Markets U.S.

Okay. So my question is, if it took 4 years to turn the U.K., why would we expect faster progress in other markets? Is it because you're already 2 years into the process or these other markets are less challenged than the U.K. was 4 years ago? You give a little perspective on that.

Sherilyn S. McCoy

Yes. No, good question. So, Connie, as I look at it, it took about 18 months to turn the U.K. We brought a new management team in, and I think the management team really has done a terrific job. As I mentioned, we have strong direct-selling expertise, also a view of the external environment. And so as I look at that, we've watched their progress. They -- it took them a time to diagnose the issue and put the plan in place, but it's taken them 18 months to get to where it needs to be. As I look at that and make that analogy relative to some of our other markets, different markets are in different places. So if I compare, on one hand, to the U.S., I said the U.S. is more challenged, that we've been suffering for a lot longer period of time. And I think 18 months would be great if we got it done in 18 months. My sense is it's going to take longer. It's hard to put a number -- a quarter on when we'll going to have that fixed, but it would be more challenging than 18 months. On the other hand, if I look at the situation in, say, a Russia, where we had a blip, we know what we're doing there. We're getting back on track, it's less of a challenge. So I think we have to look at that through the lens of where we're starting from. The point I wanted to make and the reason I wanted to provide that example is I wanted to give this -- to share with you the importance of sequencing, and that it starts with having the right people in the right job and collectively having the management team, then the discipline of execution. And we really, really need to be disciplined in the field, and that's where we're focusing, and that will drive representative engagement. Once we do that, then we can start looking at new things and bringing new things into the business. But we need to make sure that we have that fundamental capability in place. And so it will range, with some markets getting there faster and some might take a little bit longer.

Constance Marie Maneaty - BMO Capital Markets U.S.

Okay. And my follow-up question is on avon.com. It seems to me that in the past the website was supposed to allow the reps to make commission even if they weren't directly involved with the sale or the choices that consumers made. So why will it be -- what's different about what your rolling out now?

Sherilyn S. McCoy

Yes. So one of the things we've seen is we've been back and forth in terms of how we handle the website. So in some cases, we said you have to be attached to a representative; other places, we allowed people to come in. And we weren't consistent. The one learning that I had is that we did not really communicate this to the representatives in a way that shows them and enables them to earn from it. And so bringing in our top sales leaders, we've done focus groups, we've done webinars, they've actually helped us look at how we can communicate to the representatives, because in some cases, people were concerned about channel conflict. And now what we're saying to them is, if you have 5 customers that you sell to face-to-face, you're going to get a commission from that. If you have 5 people that live far away, some of your family members, and they want to order from you, they can come on to your website and you can still get a commission. So you're going to earn more money because you are able to touch more customers and explaining that to them and helping them go through that, and learning from them in terms of what works and what doesn't work will help them drive their earnings opportunity, at the same time, it enables us to do a lot more with social media, digital advertising and really modernize our business and, hopefully, bring in our new representatives and, perhaps, younger representatives who may want to only participate just online and not do face-to-face. So that's how we're looking at it for the long term.

Operator

Your next question comes from the line of Steve Powers.

Stephen Powers - UBS Investment Bank, Research Division

It's UBS. Sheri, just going back again to the 3 critical success factors that you mentioned at the start of the call, management, processes, representative engagement. I think those items make sense, but how do you measure and assess them? I understand that you don't want to provide a score card market-by-market, but I'm more interested in sort of just the basic thought process. I think you said leadership was right in about 75% of your markets, processes are right about half. I'm not sure what your grade was on representative engagement. If you could provide that, that would be great. But again, more, just how are you measuring those items and what benchmarks, whether internal or external, you're really using to arrive at those numbers?

Sherilyn S. McCoy

Right. So as we talked about from a management perspective, we actually did a thorough assessment of the management team, so we looked at 4 critical positions in those top 12 countries, and we actually did -- we used an outside group to help us with learning agility of the leaders. We did 360-degree feedback. We did interviews with the broader management team and we had external assessment, internal assessment and then our human resources team put together an overall perspective on each market. So we can see the performance and the capability of the individual, but we can also look at how they operate as a team. So that allowed us to look at the top 12 markets and go through it person-by-person, frankly, and we have coding to be able to understand how they perform or what their potential is. So that allowed us to get to that 75% number. And then as we went through the execution piece, we looked at it relative to 2 critical processes. It was the commercial marketing piece of it, as well as the field management. I will admit that that's a little bit more subjective, but what we looked at was consistency of performance, how they're performing based on what they said they were going to be able to do relative to attracting representatives, retaining representatives in the case of field management. In commercial marketing, we've been looking at their average order, how they were able to actually deal with pricing capabilities. And so those are the criteria that we used from that standpoint and looked at it on a consistency basis. And then on rep engagement, we looked at it really in terms of where they were -- were they showing trends relative to improving the rep engagement, were they going backwards or were they flat. And so that's where I said we really had mixed results. So hopefully, that gives you a perspective. So it's a combination of internal assessment with some help of some external assessment, particularly on the talent side.

Stephen Powers - UBS Investment Bank, Research Division

Okay, that does help. And I know you don't want to give specific guidance, but I was wondering if you could just help us further dimension the kind of improved performance that you expect to see in the second half. Should we expect it more in terms of improved revenue performance, more on the margin? And maybe you could just help frame those moving parts, at least broadly, qualitatively by business segment. That would be great.

Sherilyn S. McCoy

Yes. So as we said, we expect growth in the second half, both in the top line as well as in the bottom line. For the full year, we expect to have margin improvement, but I think the top line will remain challenging. We're not going to break out the amount of it or -- and I'm not going to break out by region. But clearly, what we need to see is some improvement coming through in Latin America, particularly led by Mexico and Brazil.

Operator

Your next question comes from the line of Javier Escalante.

Javier Escalante - Consumer Edge Research, LLC

Consumer Edge Research. My question has to do with the -- if you can reconcile 3 issues. One, the margin progress is slow. Then you got this very tough macro environment, particularly in Latin America. And then the fact that some of the findings that you mentioned in the U.K. requires spending. One is more face-to-face time with the reps, the other is compensation. So how all that goes together with the fact that you are maintaining your margin goal of double-digits by 2016, how that comes together? Because it seems very difficult.

Sherilyn S. McCoy

I think -- a couple of things, Javier. First of all, if we start with, for example, the U.K., spending more face-to-face time with the representative, be it the U.K., the U.S. or any other market, because I think Pablo would tell you, that in the U.S., we think it's important also to have that more contact point with the representative. It does not necessarily mean we need to spend more money. It means, in some cases, that we just need to have more efficient or effective programs in place and more outreach programs. It does not necessarily equate to more money. The macro environment, obviously, we passed some hiccups with macro environment. It's not just Avon, obviously. It's impacting everyone. We'll see how that plays out. These things tend to be dynamic. They don't necessarily be in the same place. But with that said, we're also taking the steps to make sure that we have the right products in the portfolio during a time like that. And also, we're focusing on making sure that we get our pricing right, and that's not always something that we can react to immediately. But it is something, as we've been improving our pricing capabilities, that we make sure that we're pricing in some of the changes that are impacting us, like foreign exchange, going forward. And additionally, with regards to margin, we're continuing to focus on costs and getting additional costs out of the business. But with that said, we obviously need to get the top line going also.

Javier Escalante - Consumer Edge Research, LLC

But my follow-up -- excuse me, my follow-up then is, in the case of the U.S. particularly, you eliminated a layer of management or reduced it, which is the district sales managers, who weren't doing the face time with the reps and we see what happen. So what you need to do to restore the U.S. to at least stabilize it, does it -- wouldn't it require rehiring some of the people that you just -- that you laid off and that in itself is an investment?

Sherilyn S. McCoy

So we still have 800 district sales managers in the U.S. who are very important to our business. We also have a significantly larger number of sales leaders in the leadership program. And by the way, they do most of the recruiting. And so when we're talking about face-to-face, it's important for the district sales managers to help with the recruiting and to support the sales leaders, but the sales leaders are also doing a lot of the recruiting. What we need to do in the U.S. is make sure that we are spending the time -- so for making it easy for her to come online if she's planning out to do business with us, that the sales leaders and the district sales managers have the tools to actually spend time and energy with the new representatives instead of dealing with other issues. So making sure that we're taking more challenging things off their plates so that they can help the new representatives be successful. Because we know if they make it through the first 6 campaigns, they have a much more likelihood of success for the future. So it's more around making sure we're activating the field with employee [indiscernible] and we have plenty of people to help bring in new representatives.

Operator

Your final question comes from Linda Bolton-Weiser.

Linda Bolton-Weiser - B. Riley Caris, Research Division

B. Riley. Could you, perhaps, update us on the progress to date of the $400 million cost-cutting program, maybe you could give us how much in cost reduction this year to date, and then also cumulative to date for the whole program? And then with regard to your comments on still targeting organic sales growth in second half, I know you don't want to get into giving a lot of guidance, but is it safe to assume that the growth would be stronger in fourth quarter? And do you think that there will be growth in the third quarter, or that it will be down in the third quarter and then some growth in the fourth quarter?

Sherilyn S. McCoy

So I know you'd love me to give you more color on quarter-by-quarter, unfortunately, we're not going to give more on that at the moment. And maybe if I talk about the cost savings. So in total, what we've taken in restructuring charges so far is 210 to 220 in charges that we've taken. With related charges -- I mean, savings of about 250 to 260 on a run rate basis. And then there are other savings that we've achieved that don't require restructuring charges, so be it some of the things that we've talked about with regards to sourcing and indirect -- indirect costs that we have been reducing down some of the costs there. And so there's an additional amount there. So we'll continue to focus on this. Again, some of it may have charges associated with it, a lot of it will not. So -- and we'll update you as we go with regards to the total amount.

Amy Low Chasen

Thank you. That concludes the call. Thank you for joining today.

Operator

And this concludes today's conference call. You may now disconnect.

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Source: Avon Products' (AVP) CEO Sherilyn McCoy on Q2 2014 Results - Earnings Call Transcript
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