What happened
Shares of Natura &Co (NTCO 3.29%), the Brazilian cosmetics company that owns brands like Aesop, Avon, and The Body Shop, were gaining today on reports that it was considering an initial public offering (IPO) for Aesop or spinning off the luxury brand. As of 11:37 a.m. ET, the stock was up 14.8% on the news.
So what
In a statement last night, the company said, "The IPO has been assessed over the last months as an alternative to fund the accelerated growth of Aesop, and Natura &Co's management has been taking the necessary steps to pursue such alternative."
Natura has struggled in recent quarters with flat revenue growth in constant currency in the second quarter. Also, its bottom-line result flipped to a loss at $49.5 million.
Aesop is the strongest-performing brand in the company's portfolio, with currency-neutral revenue up 24.5% in the second quarter and an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 16.2%, so spinning off the brand could unlock value for Natura shareholders.
The company had overhauled its management team back in June when CEO Roberto Marques stepped down and Fabio Barbosa took over. Barbosa said at the time that he would bring financial discipline to the company after years of high-profile acquisitions.
Now what
The market's reaction should encourage Natura to go through with the spinoff. It makes sense to separate Aesop so it can focus on turning around Avon and The Body Shop.
The cosmetics stock is down 39% this year, even after today's gains. Investors have made it clear that they want management to take a different course.
