Avon Products Inc. is overhauling its China operations in the wake of an alleged bribery scandal and worsening results there, as the cosmetics company continues to struggle to capitalize on its ground-breaking entre to the world’s most populous consumer-products market.
The New York company said Friday that its internal investigation into possible bribery of foreign government officials, which began two years ago after a tipster mailed allegations to Chief Executive Andrea Jung, has expanded beyond China into four other international units.
Both developments weighed on the company’s first-quarter earnings, which fell 64% from a year ago to $42.5 million, or 10 cents a share, mainly due to charges related to a currency devaluation in Venezuela. Weak sales in China weighed on Avon’s skin-care business, and the company said the cost of investigation could reach $95 million this year, from $35 million in 2009.
The company said it is examining practices in countries “selected to represent” each of its overseas regions. Avon has disclosed its investigation to the U.S. Securities and Exchange Commission and the Department of Justice, which it said are giving the company time to complete its probe.
“No conclusions can be drawn at this time,” Avon CEO Jung said of the investigation during a conference call Friday with analysts. The company is looking into possible violations of the Foreign Corrupt Practices Act, a U.S. antibribery law.
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