Natura Sold What Didn't Work and the Numbers Proved Them Right
When Natura acquired Avon in 2020 for $6.4 billion, the promise was to build a global giant in direct beauty sales. Five years later, the company announced from São Paulo something that sounds like defeat but financial statements interpret as victory: the completed divestment of Avon International and Avon Russia, the end of brand integration in Mexico and Argentina, and a net income from continuing operations of nearly R$1 billion. The recurring EBITDA margin climbed to 14.6%, 130 basis points above the previous year. In the fourth quarter, Latin America operated at a 16.1% EBITDA margin.
This wasn’t the result of expansion strategy. It was the result of abandoning, in time, what wasn’t working.
The Asset That Consumed More Than It Generated
Avon International accounted for approximately 20% of Natura’s consolidated revenue in the quarters leading up to its sale but had structurally lower margins than the Latin American business. Maintaining it meant defending volume in the income statement at the expense of actual profitability. A classic problem of confusing size with strength.
The process was not clean. The third quarter of 2025 recorded a net loss of R$119 million in continuing operations, compared to a gain of R$301 million in the same period the previous year. Recurring EBITDA fell by 33.7% year-on-year. There was a non-recurring accounting write-off of $322 million directly linked to the sale of Avon International. Net debt remained stable at $4 billion. No one in that quarter could read those numbers and feel comfortable.
But the logic of divesting isn’t evaluated in the quarter where the surgery occurs but in the following quarters. The fourth quarter of 2025 delivered exactly what the thesis promised: Latin America, freed from the burden of managing declining assets outside the region, operated with the highest margin of the cycle. 16.1% recurring EBITDA in Q4 isn’t a rebound; it’s a signal that the simplified architecture has better unit economics than the previous structure.
What the company did, in strictly operational terms, was transform a high-revenue low-margin business into one with more concentrated revenue and higher margins. It sacrificed between 15% and 20% of its revenue per line to gain more than 130 basis points of annual margin and nearly R$1 billion in net income. That’s the math that matters.
Why the Avon Integration Was More Expensive Than Expected
The "Wave 2" of the Natura-Avon brand integration in Mexico and Argentina wasn’t a branding project. It was, in practice, proof that unifying two direct sales networks with distinct cultures, consultants, and positioning in volatile markets is considerably more challenging than any boardroom financial model.
The second quarter of 2025 showed mixed signals: revenue in Brazil growing 10.3% and Hispanic regions rising 17.8%, but Avon Brazil falling 12.9%. This differential within the same portfolio reveals that the Avon brand did not automatically absorb Natura’s distribution muscle. It required intervention, transitional costs, and market time.
CEO João Paulo Ferreira described the process in the second quarter as progress in “simplification and restructuring.” The accurate phrase from an operational diagnosis is more direct: they were paying the costs of having built for years on an integration hypothesis without being able to test it until the operation was fully acquired. There’s no moral blame in that; it’s the structural nature of acquisitions at this scale. However, the R$2.8 billion impairment of Avon International recorded in Q3, partially offset by a gain of R$1 billion in trademarks, precisely documents how much it cost to discover that this hypothesis had a lower ceiling than projected.
Now, with Wave 2 completed and transformation costs below 2024 levels, the Hispanic and Brazilian business operates with the cost structure it should have had beforehand. Late learning is still learning.
Emana Pay and the Digital Bet That is Being Validated
There’s a data point in Natura’s quarterly reports that deserves more attention than it receives: Emana Pay, the company’s fintech platform, reached a third of the active consultants with a 50% year-on-year growth. In a direct sales company where the consultant is the channel, providing that consultant with their own financial tool affects retention, average ticket, and purchase frequency in ways that don’t immediately reflect in EBITDA but build a competitive advantage that L'Oréal or Estée Lauder can’t replicate with their traditional distribution models.
This matters because it shows that Natura is not just executing a defensive strategy of asset cuts. It is testing, with measurable adoption results, a layer of financial services over its distribution network. If that third of consultants who already use Emana Pay demonstrates greater productivity than those who don’t, the company has evidence for scaling up. If not, it has evidence to adjust. That’s exactly the type of experiment that generates actionable information about actual willingness to use, not just statements of intent.
The concrete risk for the upcoming quarters isn’t conceptual. Avon Brazil still hasn’t regained traction. The beauty market in Brazil showed deceleration throughout 2025. The exchange rate of the real affects the comparison of metrics in dollars. And the net debt of $4 billion, although stable and within the targeted leverage range of 1 to 1.2 times, does not allow for a wide margin of error if Latin American revenues do not grow with the necessary consistency in 2026.
The Cost of Waiting Five Years to Execute the Obvious
Natura completed a divestment that its own numbers justified from several quarters earlier. The process was well executed in its final phase, but the impairment of Avon International and the magnitude of integration costs document that the original acquisition hypothesis, to build a top-tier global direct beauty player outside Latin America, did not survive contact with the operational reality of those markets.
There is no corporate strategy immune to that risk. What differentiates a learning company from one that self-destructs is the speed with which it recognizes when a central hypothesis can no longer withstand the weight of the data and acts accordingly, even if that means registering billions in accounting impairments and delivering a dismal quarter to analysts.
The R$1 billion net income and the 14.6% EBITDA margin with which Natura closed 2025 are the price of that correction. And that price, compared to the cost of not implementing it, turned out to be reasonable.
