By Brazil Stock Guide – Natura Cosméticos SA (B3: NATU3) reported second-quarter net income of R$35 million ($6.5 million), while revenue fell 9.1% from a year earlier on a pro-forma basis to R$5.17 billion. The figures are from the company’s earnings report released Monday (Aug. 10).
Profit declined 82% from the pro-forma R$196 million recorded a year earlier. Compared with the R$446 million generated by continuing operations in the second quarter of 2025, earnings dropped by R$410 million.
The company’s pro-forma figures reflect the current structure of the simplified Natura group following its corporate reorganization.
Brazil Weakness
Net revenue in Brazil, Natura’s largest market, fell 14.8% to R$3.07 billion from R$3.60 billion a year earlier.
Sales under the Natura brand declined 14.5%, while Avon revenue dropped 22.5%. The company cited product shortages, weak consumer demand and lower volumes in its relationship-selling channel, which relies mainly on beauty consultants.
A temporary tax mismatch shaved about two percentage points from Brazilian sales. The impact was linked to changes in São Paulo state’s ICMS tax-substitution regime.
Digital and retail channels also lost momentum after previously posting year-over-year growth. The slowdown followed the introduction of standardized pricing and commercial rules across channels, as well as the migration of franchise agreements to a new operating model.
Management acknowledged that the economic environment wasn’t the only reason for the weak performance.
“After taking a deep look at our recent performance, we concluded that a significant part of the challenges faced in the first half was self-imposed — in other words, they were execution problems, not structural issues in the business or misguided strategic decisions, although the macroeconomic environment also contributed,” management said.
Spanish-Speaking Markets
Growth across Spanish-speaking Latin America partly offset the decline in Brazil. Revenue from those markets rose 0.7% in reported reais to R$2.10 billion and increased 7.2% at constant currency.
Excluding Argentina, constant-currency growth reached 10.9%. Natura-brand revenue increased 12.3% on that basis, while Avon sales rose 4.7%.
Mexico was a key driver, supported by stronger commercial activity and increased cross-selling of Natura products through Avon’s consultant and customer networks. Argentina continued a gradual recovery, although revenue growth remained below local inflation.
The average number of active beauty consultants in Spanish-speaking markets declined 17.3% to 1.13 million. Even so, revenue from relationship selling increased 0.5%, supported by Mexico and, to a lesser extent, Argentina.
Retail sales climbed 19.5% after the company opened 26 directly operated stores over the previous 12 months and began introducing franchises in the region. Natura ended the quarter with 105 stores in Spanish-speaking markets, including 102 company-owned locations and three franchises.
Margin Pressures
Consolidated earnings before interest, taxes, depreciation and amortization totaled R$620 million, down 5.9% from the reported year-earlier result. The reported Ebitda margin rose to 12% from 11.6%.
Compared with the 14% recurring margin recorded in the second quarter of 2025, however, profitability narrowed by two percentage points. Excluding the temporary Brazilian tax effect, the second-quarter margin would have been 13.2%.
Brazil generated R$504 million in Ebitda, a 23.8% decline, with a margin of 16.4%. The contraction reflected the tax mismatch, severance expenses and weaker operating leverage as sales declined.
Ebitda in Spanish-speaking markets almost doubled to R$160 million, while the margin widened to 7.6% from 4%. The improvement was mainly driven by lower general and administrative expenses and early savings from the new operating model.
Group spending on administration, research and development, information technology and projects fell 18%.
Natura has booked R$263 million in severance costs since announcing its operating reorganization in late December 2025. About 85% of the planned headcount reduction had been completed by the end of June.
Currency and Derivatives
The company posted a net financial loss of R$297 million, compared with financial income of R$23 million a year earlier. The R$320 million deterioration was the main factor behind the decline in net income.
Financial foreign-exchange losses totaled R$114 million, compared with gains of R$268 million in the same period of 2025. The latest result included costs tied to derivatives used to hedge the principal of dollar-denominated bonds and the partial settlement of those instruments.
Severance costs related to the new operating structure and higher tax expenses in Spanish-speaking markets also weighed on profit. The higher tax burden accompanied stronger operating results in those countries.
First-Half Loss
Natura’s first-half revenue fell 8.5% on a pro-forma basis to R$9.92 billion. Ebitda declined 26.2% to R$965 million, with the margin narrowing to 9.7% from 12.1%.
The company posted a first-half net loss of about R$410 million, reversing a pro-forma profit of R$44 million a year earlier.
Brazilian revenue declined 10.7% in the six-month period. Sales in Spanish-speaking markets increased 3% at constant currency but fell 5.2% in reported reais.
Debt and Cash Flow
Net debt fell by R$179 million from the previous quarter to R$3.86 billion at the end of June. The net debt-to-Ebitda ratio improved to 2.06 times from 2.12 times.
The reduction was supported by R$342 million in free cash flow to the firm and R$160 million received through the Natura Pay receivables investment fund. Interest payments and derivative settlements partially offset those inflows.
Free cash flow from continuing operations totaled R$342 million, compared with R$365 million a year earlier. Improvements in receivables and inventory helped cushion higher net financial expenses.
Operational Response
Natura created a task force to address supply-chain bottlenecks and stabilize support systems during the second half of 2026. The company is also adjusting incentives for consultants and redirecting commercial efforts toward faster-selling product categories.
The franchise realignment is expected to support a recovery in sales to franchisees and allow expansion plans to resume in the third quarter. Natura is also relying on its Minha Loja digital platform and additional online marketplaces to boost direct-to-consumer sales.
Management revised its 2026 ambitions but maintained an expectation for reported Ebitda margin expansion from the 2025 level. The company also expects free cash flow to remain positive and exceed last year’s total.
“This performance falls short of our initial expectations for the year and represents a temporary setback in the resumption of growth, but it does not change the fundamentals of the business thesis,” management said.
Natura will hold its earnings call Tuesday (Aug. 11) at 9 a.m. in Brasília, with a Portuguese-language webcast and simultaneous English interpretation.
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