What happened
Shares of Natura & Co (NTCO -0.16%) fell by as much as 12.5% in early trading on Thursday after it delivered its fourth-quarter report following the close of trading Wednesday. The results for the cosmetics company -- which owns Avon, The Body Shop, and Aesop, as well as its namesake brand -- were mixed, but the broader trend here is likely unnerving investors.
So what
Brazil-based Natura's sales fell roughly 5% in constant-currency terms in Q4, and gross profit fell nearly 2%. However, its gross margin improved, leading to a nearly 4% improvement in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Net margin also advanced by an impressive 4.5 percentage points, leading to a net income improvement of nearly 300%. So the top line wasn't so great, but the company was able to cut costs and improve its bottom-line results. That mixed showing isn't exactly bad news, but when you step back and look at the bigger picture, things appear more troubling.
Image source: Getty Images.
For the full year, Natura's constant-currency sales rose 3.8%. This means that in the most important sales quarter of the year, the company delivered a relatively weaker performance. To make matters worse, management highlighted that it is facing supply chain and inflation headwinds, as well as lackluster sales in its home market. Onto that list, it added geopolitical tensions, highlighting the uncertainty impacting its Russian operations. The takeaway is that it appears that Natura's future performance could be less than exciting, particularly given that it ended 2021 on a weak note, sales-wise.
Now what
Management closed out its written comments about the fourth quarter by saying that it expects to face "continuing challenges especially in the first half of 2022." That's not a great outlook given the backdrop. It is hardly surprising that investors chose to take a "glass half empty" view of things Thursday, especially given the broader market's declines early in the session.
