May 8, 2020 / 6:44 PM / a month ago

UPDATE 2-Brazil's Natura sees COVID-19 slamming Latam business, other regions start to rebound

(Recasts with details of outlook, adds CEO comments, analyst comments, share movement, financial and industry details)

By Gabriela Mello

SAO PAULO, May 8 (Reuters) - Brazilian cosmetics maker Natura & Co Holding SA has seen some recovery at its Asian and European operations as stores begin to gradually reopen after coronavirus-related lockdowns, executives said on Friday, adding the pandemic is likely to hit its Latin American operations harder going forward.

"The environment continues to be challenging, with social distancing and lockdown measures still having an impact on our business, particularly in Latin America," Chief Executive Roberto Marques told analysts on a conference call to discuss quarterly earnings.

Natura & Co, which owns Natura, Avon, The Body Shop and Aesop brands, has decided to scrap 2022 forecasts, but Marques sought to reassure analysts and investors the company has a solid financial position to navigate the ongoing crisis.

In addition to its cash position of 4.6 billion reais ($800 million) at the end of March, the cosmetics maker has secured a 750 million-real financing line and plans to raise up to 2 billion reais in a private equity placement priced at 32 reais per share.

"It gives us confidence in case the scenario deteriorates and, in case it actually improves, we can use the money to invest earlier in strategic areas where we want to accelerate growth," Marques told Reuters in a separate interview.

One of those areas is digital initiatives, where Natura & Co is doubling down efforts after total online sales increased by more than 250% during the outbreak. Natura and Avon e-commerce sales rose 150% in recent weeks, while The Body Shop jumped more than 300% and Aesop more than 500%.

"Even as we reopen stores in Asia and some countries in Europe, the response to our e-commerce has been amazing and we don't expect online sales to go back to what it was before the crisis," the CEO said.

Another focus is its tie-up with Avon, which according to Marques is evolving faster than expected.

Costs related to the transaction - announced in May 2019 and completed last January - dragged down the company's bottom line in the first-quarter, leading to a net loss of 820.8 million reais ($140 million) and overshadowing timid revenue growth.

Shares of Natura & Co were down 0.6% at 36.25 reais on Friday afternoon after rising nearly 3% earlier in the session.

Analysts at Brazilian investment bank BTG Pactual said they had "mixed feelings" about the company.

"Overall, we keep our Neutral rating due to the challenges in reviving The Body Shop brand, while awaiting clearer signs of Avon's turnaround before assuming a more constructive view on the investment case," analysts Luiz Guanais and Gabriel Savi wrote in a report.

Chief Financial Officer José Filippo said Avon-related transaction costs will be lower in coming months.

Natura & Co raised total expected synergies to be realized gradually until 2024 to between $300 million and $400 million on an annual recurring basis from $200 million-$300 million in January. One-time costs to achieve such synergies are now projected at $190 million, up from $125 million. ($1 = 5.83 reais) (Reporting by Gabriela Mello in Sao Paulo Editing by Steve Orlofsky and Matthew Lewis)

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