Natura & Co Holding SA
BOVESPA:NTCO3
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
13.11
18.5
|
| Price Target |
|
We'll email you a reminder when the closing price reaches BRL.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Natura & Co Holding SA
You don't have any saved screeners yet
Good morning, ladies and gentlemen. Thank you for waiting. At this time, we would like to welcome everyone to Natura &Co First Quarter 2022 Results. This event is being recorded. [Operator Instructions]
This presentation may contain forward-looking statements. Such statements are not statements of historical fact and reflect the beliefs and expectations of Natura &Co's management. Forward-looking statements speak only as of the date they are made, and the company does not undertake any obligation to update them in light of new information or future developments.
This presentation also includes adjusted information prepared by the company for information and reference purposes only, which have not been audited.
Now, I will turn the conference over to Mrs. Viviane Behar, Investor Relations Officer of Natura &Co. Mrs. Behar, the floor is yours.
Good morning or good afternoon to everyone. I'm Viviane Behar, Natura &Co's Investor Relations Officer. Thank you for joining us today for this call to present Natura &Co's First Quarter 2022 Earnings. I'm joined today by Roberto Marques, Executive Chairman and CEO of Natura &Co; and Guilherme Castellan, CFO of Natura &Co. Joao Paulo Ferreira, CEO of Natura &Co Latin America, will join us for the Q&A session. The Natura &Co Investor Relations team is also with us.
The presentation we will be referring to during this call is available on the Natura &Co Investor Relations website. Roberto will start today with an overview of our performance, Guilherme will detail our financials for Natura &Co. And after that, Roberto will make concluding remarks, and we will open the floor to your questions.
For the sake of time, in order for us to accommodate questions from all of you, we would like to ask you to please limit yourself to 1 question each in the Q&A session. Thanks for your understanding and cooperation on this. Let me now hand over to Roberto. Roberto, please?
Thank you, Viviane, and hello to everyone. Thank you for joining us. Let me now on Slide 3 quickly take you through the main highlights of the quarter. As indicated in our Q3 and Q4 '21 results, Natura &Co continued to face a challenging environment in Q1 '22. Our performance reflects intentional ongoing changes at Avon business, such as portfolio simplification and the new commercial model implementation, channel rebalancing at the body shop as well as external factors. But it is also a quarter that showed progress on fundamentals and positive signs at several of our brands that give us confidence that our strategy is the right one, and we are on track to achieve our medium-term ambitions.
Net revenue was down 12.7% in reais and minus 4.6% at constant currency, and adjusted EBITDA declined 300 basis points to 7.2%. First, it is important to point out that this quarter has a very strong comparable base in Q1 2021, when sales were up by 25.8% in reais and 8.1% in constant currency against Q1 2020. We also saw rising inflation that has affected discretionary income and consumer spending in our key markets, particularly as we have greater exposure to Latin America and Europe, while global beauty growth today is driven primarily by Asia and North America.
We also continued to face cost pressure in the supply chain and are seeing the first effects of the war in Ukraine, especially at Avon International as well as some lingering effects of the pandemic still. And added to that are an unfavorable currency effect as the real appreciated versus many of the group's currencies in the quarter. As I mentioned, we saw several positive signs in the quarter. At Natura in Brazil, growth resumed even on a tough comp and gained significant market share in this quarter. We are continuing to make advances in Avon's new commercial model.
In Brazil, we saw a sequential improvement in activity and productivity, mainly driven by beauty categories. We also saw similar growth in productivity in the Hispanic markets. At Avon International, a new commercial model is contributing also to improvement in some key performance indicators with productivity growth and stable activity, excluding Russia and Ukraine. And we also saw sequential increase in social selling adoption. Synergies from Avon's integration continues to be on track with another $66.2 million recorded in the quarter. Aesop continues its remarkable growth story with another quarter of double-digit growth in constant currency.
The Body Shop faced a particularly difficult quarter due to a weak consumer demand in Europe, in a channel mix effect, but we are hopeful for a recovery in the second half. We ended the quarter with a solid cash position of BRL 4.5 billion, and in April, Natura &Co successfully issued a $600 million bond as part of our efforts to improve our capital structure with no impact in our debt ratio.
On Slide 4, we look at the continued progress we are making on digital as part of our omnichannel transformation. Digital-enabled sales, which include both online sales from e-commerce and social selling as well as relationship selling using our main digital apps reached almost 51% of total revenue. This compares to almost 45% last year and significantly above the 35% reported in Q1 of 2020.
Overall, we are seeing some channel rebalancing as stores reopen, but online sales are still significantly above pre-pandemic levels at all of our brands. By nearly 4 times at Natura and Avon and by 1.3x at both Aesop and the Body Shop. Adoption of the Avon ON app at Avon International has posted consistent and sustained growth over the last 9 quarters, reaching 16% or 5x pre-pandemic levels.
And at Natura, the number of consultants sharing content is also up nearly 5x pre-pandemic levels. In our digital payments platform, &Co Pay at Natura in Brazil posted strong growth in both number of accounts, reaching approximately 390,000 and in total payment value, which reached BRL 2.1 billion in the quarter.
On Slide 5, we also feature some examples of our robust innovation pipeline in the quarter. As you can see on the slide, there is a steady wave of new launches across our brands with Avon continuing to focus on the breakthrough Protinol technology in addition to launching a fragrance that uses neuroscience technology. Natura launched a review for its essential fragrance using recycled glass and post-consumption recycled plastic. The Body Shop launched a new line, wellness collection, and Aesop launched a new eye serum to elevate its skincare proposition.
With this, I will now hand over to Gui to discuss our financials and brand performance.
On a consolidated revenue on Slide 7, which was down 12.7% in reais and 4.6% in constant currency, landing at BRL 8.3 billion. Over 45% of revenues in the quarter were generated outside Latam. Roberto already mentioned the difficult environment in which we operated as well as some of the intentional moves we made as part of Avon's transformation, which largely explained the decrease in top line for the quarter.
On Slide 8, you see that EBITDA margin came in at 7.2% in the quarter, a drop of 300 bps versus the same quarter last year. The building blocks in the chart shows that this is mainly due to 2 impacts related to the challenging operating environment. First, the inflationary and the FX pressure, which reduced margin by 960 bps. Second, other temporary business pressures, which is mainly sales deleverage, which unfavorably impacted margin for another 240 bps. However, we were able to contain this drop and partially offset the impacts to a positive 560 bps coming from synergies and revenue management and other efficiencies, cost containment and one-offs, for another 350 bps, the vast majority of which are recurring savings.
On Slide 9, you see that we posted a drop in net income and underlying net income in the quarter. Underlying net income, which stood at a negative BRL 392 million was the result of the combination of a lower EBITDA as explained before, and an increase in financial expenses of BRL 165 million, mainly caused by FX variations. Reported net income, which was a negative BRL 643 million resulted from an additional BRL 121 million in Avon acquisition effects and PPA effects for BRL 131 million.
On Slide 10, we look at our balance sheet and liquidity profile. We ended the quarter with a cash position of BRL 4.5 billion. This cash position comes after free cash flow consumption of BRL 2.2 billion in Q1, which is mainly related to negative FX impact from translation of cash balance had in foreign currency due to the BRL appreciation in the quarter and the decrease in adjusted net income.
Operational working capital resulted in a cash consumption of approximately BRL 200 million in the quarter, an improvement of more than BRL 500 million compared to Q1 '21. The first graph shows that our net debt-to-EBITDA ratio stood at 2.1x at quarter end, up from 1.5x in Q4 and 1.2x in Q1 of last year. The indebtedness ratio reflects greater cash consumption in Q1 and lower EBITDA.
Our cash position is higher than the BRL 3.8 billion we faced this year in debt servicing, as you see on the chart on the bottom right. It's important to highlight the Natura &Co Luxembourg completed a $600 million bond issuance on April 13. The funds will be used to refinance Avon's 23 bonds and other maturities of Natura Cosméticos.
Management is strongly focused on optimizing cash conversion in the short and medium term. Our focus remains on improving working capital on top of simplifying our portfolio structure and planning to deliver more savings in the medium term. Other priorities include optimization of CapEx and cash taxes.
Let's turn now to our performance by business units, beginning with Natura &Co Latam in Slide 12. In the first quarter, total net sales were down 8.4% in reais and 2.1% in constant currency on the back of a very tough comparable base as Q1 sales last year were up 24.6% in reais and 15.9% excluding currency effects versus Q1 of 2020.
The Natura brand was down 1.9% in reais, but was up 5.3% in constant currency. The Natura brand resumed growth in Brazil, up 3.1%, up against a very challenging comp and facing continued erosion of disposable income. Growth was mainly driven by consultant productivity, which was up by a strong 10.5% in the quarter. Natura gained significant market share this quarter in Brazil according to Kantar.
In Hispanic markets, Natura revenue was down 8.7% in reals but up 8% in constant currency despite a very strong comparable base. Growth was mainly driven by Argentina and Colombia, supported by an increase in the number of consultants and improved productivity. Revenue for the Avon brand Latam was down 16.3% in reais and 11.1% in constant currency. In Brazil, net revenue has improved sequentially since Q3 2021, but was still down 17% this quarter. A significant part of this drop comes from Fashion & Home, down 32.3%, both as a result of the reopening of retail, which gave other alternatives to shoppers and intentional portfolio reduction.
Beauty sales declined by less than 10%. Measures adopted since October resulted in improved KPIs, including productivity growth in the beauty category in Q1 improving month after month and reaching positive double-digit growth in March for the first time since a new commercial model was implemented. Productivity of Beauty and Fashion & Home combined was positive in the month of March as well.
In Hispanic markets, net revenue was down 16% in reais and up 7.9% at constant currency, reflecting a very strong comparable base in Q1 '21 and a decline in Fashion & Home sales. The new commercial model is showing significant progress in Ecuador, with activity and productivity growth in nearly all campaigns in Q1 versus last year as well in Central America with a sequential increase in activity and higher recruitment.
We now turn to Slide 13 to Natura &Co Latam's adjusted EBITDA, which was 9%, down 320 bps versus the same quarter last year on a strong comparable base, but significantly above the 6.9% recorded in Q1 2020. Synergies, revenue management and strict financial discipline partially offset the impact of sales deleverage at Avon, raw material inflation and FX headwinds. SG&A rose by 320 bps to 55.3% impacted by higher inflation on logistics, personnel and services as well as sales deleverage at Avon. These effects were partially mitigated by synergies and revenue management. It is important to highlight the Natura brand EBITDA margin remains very healthy, even amidst a tough macro environment.
Let's now move to Avon International on Slide 15. Net revenue was down 22.1% in reais and 10.1% at constant currency, mainly impacted by the war in Ukraine, lower disposable income in Europe from rising inflation, and fewer representatives than last year when the channel benefited from lockdowns. Here too, the drop also reflects intentional portfolio optimization linked to the implementation of the new commercial model.
We continue to see important progress on Avon's business fundamentals, including sequentially higher productivity since the rollout of the new commercial model, which is now deployed in 14 markets. In Q1, we recorded an increase of 9.1% in productivity as well as stable activity if we exclude Russia and Ukraine. Overall, representative satisfaction continues to show positive momentum compared to the previous year on the back of record service level rates and the new commercial model.
Q1 adjusted EBITDA margin stood at 4.4%, plus 30 bps versus Q1 '21. This is a major achievement that was supported by the transformation of the business, strict financial discipline, and structural savings from the simplification of the operating model. This allowed us to offset continued impacts from inflation and higher commodity prices as well as effects from the war in Ukraine, which had more than 100 bps negative impact in its margins.
On Slide 17, we now move to the Body Shop, whose Q1 net revenue declined 22.9% in reais and 16% at constant currency. Sales were impacted by difficult trading conditions in Europe, where inflation is constraining disposable income. But the drop in sales also reflects an expected channel rebalance. With retail reopening, Q1 '22 store revenue grew 62.4% in constant currency versus Q1 '21, driven by improvement in store trading days and recovering footfall in many markets. Stores represented over half of total sales, which is more aligned with the pre-COVID levels. This is up by 26 percentage points versus Q1 '21, which was impacted by post-Christmas lockdowns in many markets.
But as store sales and traffic pick up, The Body Shop At Home, its direct selling channel, has seen a steep decline in the number of consultants after having strongly outperformed during lockdowns. To understand the Body Shop's performance, it's important to look into the U.K., its largest market, where sales were down 26.3% versus Q1 '21 in British pounds, mainly due to a contraction in The Body Shop At Home and also lower footfall in stores compared to pre-pandemic levels. This is the case for U.K. retail in general as verified by external market data.
But U.K. sales are up by 8% versus Q1 '19, and sales at stores and e-commerce combined are up about 2% versus Q1 '19, which is also in line with U.K. market data for the healthy and beauty sector in this period. Q1 adjusted EBITDA margin was 6.4%, minus 830 bps versus Q1 '21, mainly due to the absence of one-off pandemic-related government aid that supported last year, lower volumes and channel mix rebalancing, notably franchisees.
We expected EBITDA margin to recover in H2 as prospects for retail and head franchisees, the most profitable channel, are up a bit. This reflects higher vaccination rates, resumption of tourism, launch of stores in new markets, and further expansion of new concept stores whose deployment across the existing portfolio has resumed, reaching 156 in the first quarter.
On Slide 19, Aesop again recorded an excellent performance with another quarter of solid growth, up 9.6% in reais and 21.3% at constant currency. Aesop consistently posted superior sales growth relative to global luxury brands. Our markets delivered double-digit growth led by North America and Asia Pacific. Japan posted 19% growth in constant currency versus Q1 2021. China entry plans are ongoing, including investments in digital platforms. Q1 adjusted EBITDA margin was a robust 21.7%. A 500 bps decrease compared to Q1 '21, is mainly due to planned higher investments in digital categories and geographic expansion to drive future sustainable growth.
Let me now hand back to Roberto.
Thank you, Gui. I will now conclude on Slide 21 with our key takeaways. First, Q1 was a tough quarter, as we also had previously flagged, and we expect the environment to remain tough in Q2. But it's important to highlight that our fundamentals remain solid, and we are focused on flawless execution of our strategy as we navigate these headwinds.
Second, we continue to pay particular attention to discretionary OpEx and CapEx as well as focusing on cash flow. Third, the comparable base will become more favorable for us in H2. Also, we're going to see more the result of some of those fundamentals coming across in H2, and we expect to see further gains from Avon's transformation.
Fourth, the company is reaffirming its EBITDA margin target in 2024, despite the outbreak of the war in Ukraine and the recent deterioration in the macroeconomic and geopolitical environment, which are impacting consumer spending and demand. However, in light of this effect, the company now expects to achieve its consolidated net revenue and leverage target also in 2024 from previously 2023.
Thank you very much for your attention. And now Gui, JP, and I are happy to take your questions.
[Operator Instructions] Our first question comes from Helena Villares of Itau.
It's only 1 question, right, so let me be just very summarized here. We wanted to further understand the Avon KPI. We thought that the KPI for especially Latam was very good, an improvement compared to 4Q '21. And what we try to understand here is what do you think is going to -- when do you think it's going to show this improvement in the operational figures, also in the income statement of these business units? And also, why do you have this delay? If you could further explain why you have the delay in terms of the operational improvements and the financial statements improvement would be great.
[Technical Difficulty]
Mr. Roberto, you may proceed.
Hello guys, apologies. We lost the connection here. Can you guys hear me? Helena, can you hear me?
I can Roberto. Did you hear my question? Do you want me to repeat?
No, no, no. I heard your question loud and clear. So apologies. And by the way, guys, we'll stay another 5 minutes or so late to make it up for the time that we lost. So again, apologies for that.
But going to your question, Helena, so we believe that those leading indicators are really encouraging. And those are very important and give us the confidence that the new commercial model is really starting to show the results that we projected, right? So when you see productivity growth both in Latam and in Avon International, retention and activity that's very positive.
But to your question, why and when we're going to see the results on the sales on the P&L, we think towards second half of this year. And why is that? Because we're still seeing a lower number of reps, which is part of this redesign of the commercial model. So when you compare to prior year, it's impacted by the total number of reps.
But as we're going to progress in terms of retention, activity, and productivity, we are projecting to start seeing positive territory in the second half of the year. Does that help you? And by the way, JP, could you also comment more specific in Latam from your perspective?
Sure. Can you hear me, Roberto?
Yes, I can. I can hear you.
Good. So that was a good spot, Helena. So all the underlying indicators are trending positively. As Roberto said, now say, Avon Brazil is now 5 months of continuous improvement. And so when you project forward, you're going to end up with Roberto's conclusion. Second half, we would see positive top line indicators. When it comes to -- but as productivity improves also the profitability should improve, which is part of your question. So we're expecting that. We are also facing some pressures in other lines, such as logistics, for instance, or personnel, which we are tackling through accelerating some of our integration initiatives. So all in all, combined Avon aim across the entire Latin America is heading to positive results in the second half.
The next question comes from João Soares of Citibank.
I have a quick 1 here. Just to unpack the margin pressure that we saw in the Body Shop, understand exactly what is related to the inflationary pressure, what is related to the China rebalancing. And going forward, what sort of measures are you taking in terms of revenue management to recompose that margin? Would be very helpful.
This is Gui. And yes, I think the Body Shop posted a decline -- significant decline in margins in the first quarter of this year compared to last quarter -- compared to the first quarter of 2021. And when we start looking at those numbers, the main impact in the end of the day was channel mix and sales leverage, right? And both of them, they represent like a mid-single-digit impact in the margin of the Body Shop, right, compared again to the Q1 of last year.
On the channel mix, it's very important to highlight that the main impact there is the head franchisees, which is basically our exports to different countries of the Body Shop. And as a result of the COVID, now as a result of Omicron in the end of last year, there is basically a lower demand for the products right now as the stock is higher, the inventories are higher.
And that's why, again, we are more confident that the results of the Body Shop from a channel mix perspective they will start to pick up in the second half when we start seeing the channel mix normalizing and also an increase in footfall in the company's retail, right? Then the other impact, which you correctly mentioned, the sales deleveraged right across by, of course, not only the decrease in the head franchisees, but also the overall decrease in the sales, which is mainly impacted by the lower -- The Body Shop At Home channel, right, the social selling channel for The Body Shop At Home, which achieved its peak in Q1 of 2021.
So also, it's the most difficult comparable for the Body Shop in terms of quarters for this year, right? So we are -- again, we are confident that when we start looking at those things, we are expecting a much better H2 for the Body Shop. Again, it's still a challenging Q2, but a much better H2 compared to what we have today. On the inflation side, we saw some inflation, especially coming from freight, but those are more than offset by pricing and discount management.
That's very helpful. But I know it's a tough one, but do you think that it's possible we can see this margin coming back to double-digit levels still this year?
Yes. We don't -- you know João that we don't give guidance by quarter, right? And again, as I mentioned, right, we still see some pressures in Q2, but again, we're confident that, again, that the business will pick up and the mix will improve in H2 on the back of a much easier comp as well because remember Q1 and Q2 are the most difficult comps for the Body Shop. So that certainly will give us better results in H2, if we continue with the trends of the business that we're seeing today.
The next question comes from Andrew Ruben of Morgan Stanley.
I was hoping you could dig a bit more into the Brazil results. It looked like a pretty good quarter for the Natura brand. Really just want to understand some of the drivers, including the consultant productivity. And conversely, if we look at Avon Brazil, perhaps excluding the Fashion & Home drag, what are you seeing in terms of the core beauty categories? And again, how that compares to the Natura business?
Andrew, thank you for the question. I'll pass straight to JP to answer on the Brazil, and it's an important question because on one hand you saw very clearly -- we're very pleased with Natura results. Again, as we said, sequential progress is now showing growth, but also I would highlight very strong market share results that we've got on Q1.
And on Avon Brazil, again, the separation of Fashion & Home and Beauty is important because Fashion & Home is intentional to some extent and also because of the reopening of other channels impacting. But the fundamentals of Avon Brazil is actually very encouraging, and we are seeing progress quarter by quarter. But JP, please go ahead.
Thank you, Roberto. Thank you, Andrew, for the question. So indeed, we are so happy with the Brazilian business -- Natura's Brazilian business. We've shared with you as of Q3 last year that there was a major shift happening in the marketplace, which changed completely consumption patterns, categories, channels and so on, and how we were adjusting to those by changing our offerings and accelerating some of the other shopping experiences, multichannel alternatives. And as a result of that, we have been outgrowing the market since Q4. And in Q1, it showed very strongly in market share.
So we are well set for the year. And I do expect some improvement in consumption in general, not as much from volume, but in general from price. So -- and by the way, I mean, when I think about that trajectory, I cannot miss the opportunity to say how happy we were with Mother's Day. I mean, really confirming all of our expectations for Natura.
And as regards Avon, as Roberto said, you look at productivity of CFT in our reps, and it's already good. And so we should ride that tide. I mean, some of the categories are coming back, for instance, makeup as mobility comes back. People are wearing more makeup. That was 1 of the categories that was most hit during the pandemic. And Avon is the market leader in makeup. So it should ride the tide, that wave. And so we are well set for that, while all the adjustments in commercial model are now working.
And to finalize, we were hit a little bit in purpose from the [indiscernible] Fashion & Home categories. But even there, we made some adjustments towards the end of the quarter. And as a consequence, I think that the mix for Avon is also -- we are prepared for the opportunities towards the rest of this year.
The next question comes from Ruben Couto of Santander.
I want to go back to the Body Shop. Can you give a little bit more color on this weaker performance of the franchise channel compared to the own stores channel. Was this entirely related to this weaker sellout and consequentially lower selling to franchises? So this is why we saw this weaker performance, which means that in own stores, our sales have performed well and as expected. Is it true? Or is anything different happening with the brand across the different geographies? Just wanted to understand if this was specifically a first half of '22 isolated impact in the franchise channel or it is more of a full-fledged brand-related impact.
Ruben, thank you for the question, and it's a very important one to level set everybody. It's absolutely a one-off situation or phasing if they wish related to what happened with the head franchise. What happened was exactly, as you know, Christmas and year-end is very important for the Body Shop. And of course, the head franchisees were very excited about Christmas. They had a lot of selling. But then as you see, most of the markets at that point, faced either lockdown or faced some retraction because of Omicron, so they ended up with higher inventory, right? And that's what now is impacting Q1 because of a lower purchase from the head franchisees and because they are important channel.
For the TBS, they had an impact also on the margins. We're absolutely confident that this will normalize, especially as we enter second half of the year because all the fundamentals of the Body Shop, and we are hearing directly from the head franchise, they are very excited about the new store design that will continue to roll out the workshop. They're very excited about the revolution of the refill stations that we're doing, some of the new lines like the wellness lines that we just launched. So all of those things are -- give us confidence that again -- taking into account some of those runoffs, some of those comparisons, again -- very tough comparisons, especially on The Body Shop At Home last year. When you normalize those things, especially again entering in H2 2022, where we're going to see some very positive trends as well.
The next question comes from Joseph Giordano of JPMorgan.
My question to you relates to the Brazilian business, particularly, right? So we have like several initiatives related to channel diversification. So I'd like to understand how you guys are tackling the small franchises and if you have like any color on the growth of this channel. So like you have the sales rep [indiscernible] shops. So how has this been contributing to Natura sales? And what's the plan here to eventually roll out this same initiative to Avon?
Then my second question goes into like Avon International, right? So probably have a ton of volatility or had like a very low visibility. But the question to you is like for how long do you think like you can still run in Russia with your full product assortment considering the inventories you have on the ground?
And lastly, I don't know if you like have like all the details, but like thinking about like the full reopening in Latin America taking place mid-March -- late February or mid-March, how are you seeing the competition evolving since then?
Joe. We are trying to be quick here to try to address all your questions. I'll start with the international, and then I'll pass to JP to talk about Brazil and Latin America. So on the international, again, we're very pleased to see, one, the margin is holding up despite the war in Ukraine. And that's, again, as Gui mentioned, linked to some of the fundamentals on the operating model, simplification on the way Avon is operating outside of LATAM as well, which is really starting to pay out.
Second, the productivity improvements to the new commercial model that give us really conviction that the changes that we implemented is going to start to really pay out as well. Now in regards to Russia, we made the decision to pretty much self-contain Russia. So we are not working with the full portfolio. It's a very limited portfolio to only supply the representatives in Russia for their livelihood, but it is really now a much smaller operation supplied by the local manufacturing in Russia.
And with that, JP, do you want to comment about Brazil and Latam? Please go ahead.
Sure. So all of the other formats other than the traditional reselling, and I'm here including e-commerce, consultants, online store, social selling, our own stores, consultants franchise stores, all of that on average -- on average across the region, where it's slightly more than 10% of the revenues for Natura and in many countries is yet higher than that. And those formats grow faster than the traditional reselling.
All of them are growing, but these other formats grow faster. And because of that, we will continue to invest and expand even in the consultants' franchise stores. There is 1 of those formats, which allow multi-brand execution. And for those, we will introduce more intensely the Avon brand. But that's not significant for what we have to do with Avon in the short term so that you -- I don't want you to be misled on this.
The next question comes from Robert Ford of Bank of America.
Roberto, JP and Gui. It's a simple one. Why did the consultant network contract in Natura Brazil in the quarter?
Bob, could you repeat the question, sorry?
Of course. I was curious as to why the consultant network contracted Natura Brazil?
Okay. So JP, do you want to answer that, please?
Sure. Bob, it actually contracted as of end Q3 last year. So the current numbers -- absolute numbers are similar to Q4, but it compares to a higher base in Q1 last year, where we still benefited from that huge surge of new consultants during the pandemic. So right now, it is very stable as of Q4. And I prefer that. You know that my preference is to grow productivity much faster than the absolute number of consultants because that increases their gains, their dedication, their ability to explain our products and service better their clients. So I think the numbers in absolute terms we're going to see going forward is going to be -- are going to be very similar to what we are seeing right now.
The next question comes from Danniela Eiger of XP Investimentos.
And my question is regarding how we should think about EBITDA margin evolution going forward? I remember that you guys mentioned that we should already expect some recovery in the second semester of the year. But now given this new like headwinds that are kind of out of reach from you guys like the conflict. How should we think about this recovery? Should we think that margins should actually normalize on 2023 onwards?
Danniela, Roberto here. Thanks for the question. One, again, and I hope you guys saw that in our material fact, which we are very confident about our margin progression. Again, we don't do guidance on a yearly base, but we confirm the progression on our margins. And that is in line again with all the fundamentals and why we are projecting in the second half of this year and then entering 2023 and 2024.
So from a margin perspective, I think all the actions that we are taking and will continue to take actions from consolidating the synergies, even exploring others. So we feel pretty good about that progression. And again, we hope that we're going to start really seeing that progression, especially in the second half of the year. Do you want to add something, please?
Yes. Thank you, Danniela. Well, first, let me start saying that, of course, it is a difficult market scenario, right? But we're definitely not happy with the margin in Q1, right? I think we're confident that we have a plan. And again, when we look at the KPIs of the commercial model in Latam, and of course, other KPIs in Avon International and the trends of the business, I think it gives us a very good reasons to believe about an improvement.
So if we start looking brand by brand, I won't start highlighting that Natura as a brand, right? Natura margin remains extremely healthy, okay? So Natura Brazil, Natura Hispanic Latam, Natura as a whole -- as a brand remains extremely healthy.
Now, if you move to Avon Latam, as [indiscernible] mentioned, right, with the trend of the KPIs, right, operational levers should start kicking in, right, plus, of course, the new rationalization of the profit offering, and we should start seeing much better margins come in the second half of this year. And the same thing for international, by the way, with the progression of the main commercial KPIs.
The Body Shop, we already talked a little bit about that, right, about the channel mix and how we see this mix unfolding for the second half, plus the rollout of the new workout stores that, of course, has a much higher productivity of the stores that we currently have.
And Aesop, again, I think we shouldn't expect to see margin expansion from Aesop given the investments in geography and categories, right? But when you put all of those things combined, I think it gives us reasons to believe that the margin situation is going to improve significantly in H2 of this year. And as Roberto mentioned, that gives us confidence to achieve our medium-term guidance in terms of EBITDA margin.
The next question comes from Stephanie Wissink of Jefferies.
We wanted to just hear a little bit more about the pace of the business throughout the quarter and if you're willing to talk a little bit about quarter-to-date. Just trying to understand how much of the pressure was isolated into kind of March and April or if it's something that you saw earlier in the quarter.
Stephanie, Roberto here. Of course, we're not going to disclose anything on Q2 other than, again, the fundamentals continue to sequentially improve. I think you heard JP talking about, we're very pleased with Mother's Day, and we continue to see improvement in the fundamentals on the commercial model, on all the pruning of the portfolio of Avon. [indiscernible] continues to be strong.
Now, the headwinds in terms of consumer demand contraction, especially in Europe, continues. And we think that this is primarily driven by the spillover of the war, inflation across many countries in the region. So that, I think, will continue to be a headwind in Q2. So the conclusion for us remain very consistent to what we've been saying.
Q1 and Q2 this year still remains tough, but we are much more positive about second half, and again, really staying pretty much confirming of our guidance in margin, which I think it's a very positive thing. And again, we run the scenarios ourselves, and we believe that it's on the right track. Hope that helps that.
The next question comes from Irma Sgarz of Goldman Sachs.
I just wanted to sort of step back for a moment and talk about the guidance conceptually speaking. I'm a little bit surprised that you'd push out the revenue guidance by 1 year, but maintain the EBITDA margin guidance. I know you already made prior revisions to guidance. And I know that the macro is uncertain. But I would have thought that given that some of your brands, I may say, are still in the process of turnaround. I would have imagined that you want to lead the turnaround of the entire operation with the top line revenue acceleration.
And maybe even forgo a little bit of near-term margin as a consequence because that ultimately should follow once your revenue gets going and your operational leverage sort of kicks in. So just help me understand where -- how you're thinking conceptually about the progression here and where sort of my thinking must be off.
Yes. So thank you, Roberto here. Thank you for the question. Again, just to be absolutely clear, right? So when we reviewed the guidance on margin back in Q3 of 2021 that was primarily driven for some unforeseen at that moment, a pressure that was coming from supply chain and cost of some of important raw materials and commodities.
And that one, we felt that it was prudent for us to adjust the EBITDA margin progression because, as you know, a lot of the synergies -- when we actually talk about the synergies, we're expecting some of those synergies to drop to the bottom line more quickly and being able for us to reinvest. But as you can probably appreciate, a lot of those synergies, and we presented that, are being used to mitigate some of the pressures that we are seeing in inflation and cost increase.
On the other hand, on the top line, now that we have more clarity about the consequences of this whole pressure on inflation and impact on consumer demand globally, and we are seeing that pretty much across all companies, right, the projections of GDP globally is coming down. Interest rates are going up in many, many countries. You guys know that better than I do. So the consequence is a retraction in consumer discretionary spending. Hence, why we believe that now the adjustment on the top line with our margins is the right thing to do, and it's aligned to our modeling as we project the next 3 to 4 years.
The next question comes from Richard Cathcart of Bradesco.
Just 1 here on the Home & Fashion category at Avon. Just hoping that you could give us a little bit more color on what we can expect over the next few quarters, kind of how much that's still going to be a headwind, both in Brazil and in Latin America to the growth of Avon? And when we should begin to see that kind of in the base and not, let's say, actually in headwinds anymore?
Richard, could you repeat? I mean we couldn't hear you well. So sorry. So if you can just repeat the question, so we make sure that we can address properly.
Sure, sure. So the question was about the Home & Fashion category at Avon. Just wanted to understand kind of how much of a headwind this is still going to be in the second quarter, third quarter, and whether kind of as we get towards the end of the year with the rationalization of that category in the base, kind of when we should begin to see that no longer being a headwind for growth at Avon?
Yes. So I got it, Richard. I'll comment and then maybe, JP, if you want to add something if I miss about something. But actually, again, I think we've been saying, Richard, it's a combination of 2 things, and I know that sometimes it's hard to reconcile. So one is -- again is a category re-accommodation if you wish because, again, Fashion & Home, especially in Latin America. Latin America has a much higher percentage of their business in Fashion & Home than actually Avon International. So it's a different portfolio mix.
They saw a higher benefit of that because of COVID, where most of the other channels were closed, and people buying things for their home leveraging the direct selling channel. Of course, as you will see now, the other channels opening and people buying -- continue to buy through direct selling, but now also having opportunities to buy from other channels, we are seeing that accommodation. So we're seeing the decline because of the channel rearrangement.
But the second point, which comprises on that is an intentional pruning of Fashion & Home, which was always part of our strategy of the turnaround of Avon, and that is actually happening across Avon Latin America and Avon International, which is also a much tighter portfolio of Fashion & Home.
When do you think that this will become more favorable from a comparison perspective? Again, second half of 2022, which we believe then we're comparing more apples-to-apples and also the pruning that we started back then doesn't end up having such a bigger impact as we are seeing in Q1 and we continue to see in Q2.
JP, do you want to add anything if I missed something, please?
Well, as you said, I mean, not necessarily the Fashion & Home is going to become headwinds actually, but it will stabilize as the second half. In Avon Brazil, the average ticket of Fashion & Home is already back. I mean, as we closed the quarter, towards the end of the quarter, it was already back to pre-pandemic levels, which is where it should be.
And similarly, across other countries in Latin America. The one that's going to require further supervision is going to be Mexico, where that accounts for a larger part of the revenues, and we are still halfway through that process that Roberto described, but by and large stable as of the second half.
This concludes our question-and-answer session. I would like to invite Mr. Roberto Marques to proceed with his closing remarks. Please go ahead.
Thanks, everybody. Again, apologies for the technical difficulties, but we tried to extend the call to make sure that we got -- I think we got all the questions from all of you. So thank you again for your patience, and apologies for that. I want to finish saying again, clearly, as Gui said, we're not happy with the Q1 results, right? And I think it is important to highlight that. And also important to highlight that because of that we continue to review how we can simplify things, how can we get more focus in each one of the business units to make sure that they deliver against the fundamentals and the strategic pillars.
We are confident though that those strategic pillars and fundamentals are moving in the right direction, and we continue to be very vigilant to make sure that we can protect the cash flow, the financials. Again, we think we are in a very good position. But those things are moving rapidly on a very challenging fluid environment, and we continue to be very vigilant.
So I just again want to thank everybody. Thanks to our team for all the hard work, and thank you all for being on the call today. Have a good day, and have a good weekend, everybody. Thank you.
That concludes the Natura &Co audio conference for today. Thank you very much for your participation, and have a good day.