Avon: No Longer Jung at Heart

Avon Products' (NYSE: AVP  ) former CEO and current chair, Andrea Jung, will depart from the company's board of directors early, but it's too soon to throw a going-away party. Some investors may harbor hopes this indicates a change in Avon's recent ugly palette of luck and the potential for a full makeover. Still, it's too early to count on a prettier outlook anytime soon.

Although Jung gave up the CEO position at Avon last year after 12 years at the helm, she had been slated to stay on as chair for two additional years. Now she'll relinquish that role when 2012 draws to a close. This leaves room for current CEO Sherilyn McCoy to fully grasp the reins at the struggling cosmetics company.

Jung will continue to hang around Avon as a senior advisor. Although she won't collect any special fees associated with that role, or severance pay, Avon shareholders should note that she'll stay on the payroll until 2014. Her amended employment agreement guaranteed $1 million annual base salary as well as opportunities for discretionary cash bonuses, participation in the company's long-term incentive plans, and benefits and perquisites.

Although Avon's shares surged about 7% on this news Friday, there's really no good reason to be too enthused about an imminent turnaround. I recently revisited previous calls on Avon and Estee Lauder (NYSE: EL  ) , and ended up reiterating bearishness on Avon and bullishness on Estee Lauder as a far stronger stock. There's no reason to believe this latest development really changes Avon's thesis.

The global economy is still very uncertain, and Avon's got plentiful competition trying to peddle a lipstick, fragrance, or an eyeliner. Revlon (NYSE: REV  ) may be struggling (it recently announced about 250 job cuts and is restructuring operations) but it's still a contender, as are rivals as varied as Elizabeth Arden (Nasdaq: RDEN  ) and consumer products giant Procter & Gamble (NYSE: PG  ) , which owns CoverGirl.

Makeup's available from the highest end department stores to the nearest drugstore to specialty shops like Sephora and Ulta (Nasdaq: ULTA  ) .  Those specialty cosmetic shops shouldn't be understimated for their ability to forge strong connections with women, since they offer a whole range of brands and products to choose from.

Mary Kay representatives also socialize with their customers like the traditional "Avon lady" using the direct sales model.

Avon may be seen as a strong contender in overseas markets, but global economic uncertainty doesn't even make that a strong argument for investing in the stock at the moment.

Jung's departure signals the end of a long tenure, but it doesn't necessarily signal the end of Avon's hard times. There are far prettier opportunities for attractive portfolios out there.

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Alyce Lomax has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Procter & Gamble and Ulta Salon. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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