By Brazil Stock Guide – Natura &Co (B3: NTCO3) has entered what CEO João Paulo Ferreira described as the company’s “reset year.” After a weak third quarter marked by falling sales and a R$1.8 billion loss caused by the impairment of Avon International, the Brazilian beauty group is trying to turn the page on nearly five years of restructuring. Ferreira said 2026 will mark a new phase focused on margin recovery, cash generation, and the global relaunch of Avon — completing the simplification process that began with the so-called Wave 2 integration.
The quarter was pressured by four main factors: weaker consumption in Brazil, a slow pace of innovation at Avon, production disruptions caused by the Interlagos-to-Cajamar transition, and operational challenges in Argentina and Mexico. Brazil’s recurring EBITDA margin dropped to 16.2%, from 23.1% a year earlier. Even so, Ferreira reaffirmed his commitment to expand margins in 2025 versus 2024 and deliver a “simpler, more predictable” operation starting next year. “This was the last year of transformation costs and adjusted EBITDA. From 2026 onward, we start a new cycle,” he said.
Cost discipline and cash focus
CFO Silvia Vilas Boas emphasized that the current level of SG&A (DNA) expenses — inflated by digitalization, systems, and innovation projects — will not be recurring. The company has already implemented a hiring freeze, cut discretionary spending, and reviewed projects, maintaining only those deemed structural, such as a new integrated planning system and the redesign of Avon’s portfolio. “The DNA level will normalize from 2026. These projects were costly but fundamental for our future growth,” she said. Vilas Boas also reported that adjusted leverage fell to 1.87× EBITDA, and is expected to end 2025 between 1× and 1.5×, with cash conversion close to 60%, the same level seen before the acquisitions of The Body Shop and Aesop.
Granular strategy for a fragile domestic market
The domestic market remains central to the recovery effort. Ferreira acknowledged that Brazilian consumption is still “compressed,” but said Natura is responding with a more granular approach to portfolio and credit management. The company is expanding the use of its Emana Pay platform to improve credit access, reduce delinquencies, and reactivate consultant productivity. “Migrating to the Pay gives us more efficient credit tools, which should help restore consultant activity,” he said. Ferreira also noted growing regional disparities — with the Northeast under heavier pressure than the South — prompting localized adjustments to assortments and promotions.
Latin America as a recovery lab
Latin America, meanwhile, is showing uneven progress. Argentina remains affected by hyperinflation but should stabilize in early 2026. Mexico, on the other hand, is emerging as the company’s strongest growth engine, with sequential monthly improvements and integration of Avon’s direct-sales network. “It’s a geography where we are still under-indexed, and there’s a clear path to gain market share,” Ferreira said. Natura is also investing in digital channels and franchise expansion, strengthening the brand’s visibility and penetration across the region.
Avon’s relaunch as the centerpiece of the reset
The Avon relaunch is expected to be the symbolic turning point of this reset year. Ferreira avoided disclosing details but described the project as “refreshing and promising,” with a fully redesigned portfolio and repositioning strategy. “There’s a well-defined market space where Avon naturally fits — but it needs to learn how to speak to it again,” he said. Vilas Boas confirmed that the sale of Avon International remains on track to close in the first quarter of 2026, with no further cash injections required, effectively concluding Natura’s corporate simplification cycle.
Selective innovation and pricing discipline
Innovation will also become more selective and return-driven. Ferreira said Natura reviewed its product pipeline through 2028 to focus on high-margin, high-impact launches. “We’re reducing the total number of launches, concentrating resources on the big, high-return ones,” he said. The shift marks a break from previous years of SKU proliferation. Meanwhile, the pricing power of the Natura brand remains strong: “We’ve always priced to recompose margins, and that won’t change,” Ferreira said, noting that Brazil’s beauty market continues to grow mainly through prices rather than volume.
Margins under pressure but still healthy
On the operational side, the gross margin fell by 300 basis points, though it remains at a “healthy” level, according to Vilas Boas. The CFO said the decline was amplified by a strong 2024 base and the decision not to interrupt strategic investments. Natura expects to capture efficiency gains and reduce macroeconomic dependence starting in the fourth quarter, securing EBITDA margin expansion for 2025 as a whole. Governance efforts also continue: the incorporation of the holding company and the sale of subsidiaries in Central America and the Dominican Republic will simplify the balance sheet and lower fixed costs, returning the company’s structure to its pre-merger format.
A leaner, more digital Natura
Closing the call, Ferreira summed up the company’s focus for the next phase: efficiency, profitability, and cash generation. “With the end of transformation costs, we are well positioned to capture returns from our structural investments and resume sustainable growth,” he said. The reset year, he added, marks the end of a long restructuring and the beginning of a leaner, more digital, and disciplined Natura.
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