China Could Drive Huge Growth for Avon (AVP)

In this week's edition, Barron's published a bullish piece (sub req) on Avon (ticker: AVP). Barron's suggests that Avon's China operations could play a significant role in the company's future growth. Key extracts:

Avon recently received permission to have a direct-sales operation in China, although approval came much later than expected. Until now, the company has had about 7,000 small shops in China. About 5,500 are franchised, and the remainder are company-owned.

As Avon develops a direct-sales force in that country, it is likely that some of these shops will close, others will shift to the direct-sales model and still others will become salons, says Morgan Stanley's Pecoriello. In anticipation, the stores dramatically reduced their inventories last year, and sales declined 20%, from $220 million. China sales are expected to climb sharply in the future.

"China could be a $1 billion market for them," Pecoriello observes. "If you take a five-year view of China, there's a pretty big opportunity for them." Much depends, he adds, on the company's business model in China.

Avon's Q4 conference call transcript.

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