Avon Expects Product Line Simplification and Strategic Sourcing Initiative to Yield Benefits Exceeding $400 Million

NEW YORK, Feb. 15 /PRNewswire-FirstCall/ -- Avon Products, Inc. (NYSE: AVP) today announced that it expects annualized benefits from Product Line Simplification (PLS) and its Strategic Sourcing Initiative (SSI) to exceed $400 million when fully realized. Avon management will review these initiatives and its business strategies at a company-sponsored investor meeting here today. The meeting will be webcast live beginning at 9:00 A.M. Eastern Time, Thursday, February 15, and later will be archived on Avon's investor website, http://www.avoninvestor.com/.

Coupled with savings from its previously announced restructuring program, Avon said total savings and benefits from the combined initiatives are expected to exceed $700 million.

"We are pleased that these incremental benefits will provide us with additional fuel with which to continue to drive our turnaround," said Andrea Jung, Avon's chairman and chief executive officer. "We are seeing strong paybacks from our investments to drive growth, and in 2007 we will again invest in the business at accelerated levels, to build a strong foundation for sustainable growth."

The company said it expects to realize initial benefits from Strategic Sourcing beginning in the second half of 2007, with total annualized benefits from this single initiative exceeding $200 million by the end of 2009. The company expects no large costs associated with implementing SSI.

Avon said it anticipates similar benefits from PLS, with benefits building progressively over the next three years. To date, the company has incurred costs of $81 million, primarily incremental inventory obsolescence, on this effort. Avon said additional costs associated with PLS, to be determined and sized as the company identifies its optimal product assortment over the next three years, may be in the range of $100 million.

In addition to PLS and SSI, Avon said that its original restructuring program announced in November 2005 is on track to deliver in excess of $300 million of annualized savings upon full implementation. This original program is still estimated to cost $500 million in total to implement, of which the company has incurred $285 million to date.

The company said that it will use the savings and benefits from its restructuring, PLS and SSI initiatives to fund increased investments in both its brand and channel. Avon said that it expects to increase advertising by 35% in 2007, to approximately $340 million. This projected increase comes on top of an 83% increase in 2006. In addition, the company plans to step up its level of investment behind various actions to improve its Representative Value Proposition in 2007 and beyond. These investments are designed to tip the balance between earnings and effort in favor of Avon's more than five million independent Representatives around the globe.

Avon reiterated that revenue growth should average mid-single digits over the long term. Reflecting continued investments in both brand and channel, as well as the costs of restructuring and PLS, the company said that operating margin recovery would take a year longer than initially planned. While operating margin should expand in 2007 from 2006's level of 8.7%, it is expected to be close to 2005's level of 14.1% in 2008. As the savings and benefits from restructuring, PLS and SSI begin to exceed the incremental levels of investment in advertising and the Representative Value Proposition, operating margin is then expected to further expand beginning in 2009.

"We are making the right investments for this business at this important juncture to set the stage for enhanced profitability in the future," said Ms. Jung. "We are managing the business for the long-term and investing to strengthen the foundation and restore sustainable growth."

Avon, the company for women, is a leading global beauty company, with over $8 billion in annual revenue. As the world's largest direct seller, Avon markets to women in well over 100 countries through over five million independent Avon Sales Representatives. Avon's product line includes beauty products, fashion jewelry and apparel, and features such well-recognized brand names as Avon Color, Anew, Skin-So-Soft, Avon Solutions, Advance Techniques, Avon Naturals, Mark, and Avon Wellness. Learn more about Avon and its products at http://www.avoncompany.com/.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Statements in this release that are not historical facts or information are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "estimate," "project," "plan," "believe," "expect," "anticipate," "intend," "planned," "potential" and similar expressions, or the negative of those expressions, may identify forward-looking statements. Such forward-looking statements are based on management's reasonable current assumptions and expectations. Such forward-looking statements involve risks, uncertainties and other factors, which may cause the actual results, levels of activity, performance or achievement of Avon to be materially different from any future results expressed or implied by such forward-looking statements, and there can be no assurance that actual results will not differ materially from management's expectations. Such factors include, among others, the following:

   * our ability to implement the key initiatives of our global business
     strategy, including our multi-year restructuring initiatives, product
     mix and pricing strategies, enterprise resource planning, customer
     service initiatives, product line simplification, strategic sourcing
     initiative, zero overhead growth and cash management, tax, foreign
     currency hedging and risk management strategies;
   * our ability to realize the anticipated benefits from our multi-year
     restructuring initiatives or other strategic initiatives on the time
     schedules or in the amounts that we expect, and our plans to invest
     these anticipated benefits ahead of future growth;
   * the possibility of business disruption in connection with our
     multi-year restructuring initiatives or other strategic initiatives;
   * the costs associated with our product line simplification program;
   * our ability to achieve growth objectives, particularly in our largest
     markets and new and emerging markets;
   * our ability to successfully identify new business opportunities and
     acquisition candidates, and our ability to successfully integrate or
     manage any acquired business;
   * the effect of political, legal and regulatory risks, as well as foreign
     exchange or other restrictions, imposed on us, our operations or our
     Representatives by governmental entities;
   * our ability to successfully transition our business in China in
     connection with the resumption of direct selling in that market and our
     ability to operate using the direct-selling model permitted in that
     market;
   * the impact of substantial currency fluctuations on the results of our
     foreign operations;
   * general economic and business conditions in our markets, including
     social, economic and political uncertainties in Latin America, Asia
     Pacific, Central and Eastern Europe and the Middle East;
   * a general economic downturn, information technology systems outages,
     disruption in our supply chain or manufacturing and distribution
     operations, or other sudden disruption in business operations beyond
     our control as a result of events such as acts of terrorism or war,
     natural disasters, pandemic situations and large scale power outages;
   * the quality, safety and efficacy of our products;
   * the success of our research and development activities;
   * our ability to attract and retain key personnel and executives;
   * competitive uncertainties in our markets, including competition from
     companies in the cosmetics, fragrances, skin care and toiletries
     industry, some of which are larger than we are and have greater
     resources;
   * our ability to implement our Sales Leadership program globally, to
     generate Representative activity, to increase Representative
     productivity, to improve Internet-based tools for our Representatives,
     and to compete with other direct-selling organizations to recruit,
     retain and service Representatives;
   * the impact of the seasonal nature of our business, changes in market
     trends, purchasing habits of our consumers and changes in consumer
     preferences, particularly given the global nature of our business and
     the conduct of our business in primarily one channel;
   * our ability to protect our intellectual property rights;
   * the risk of an adverse outcome in our material pending and future
     litigations;
   * our access to financing; and
   * the impact of possible pension funding obligations and increased
     pension expense on our cash flow and results of operations.

Additional information identifying such factors is contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2005, filed with the U.S. Securities and Exchange Commission. We undertake no obligation to update any such forward-looking statements.

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