Fourteen months ago, Guilherme Leal, one of the founders of Natura, declared to the press that two other partners — Luiz Seabra and Pedro Passos — and himself were buying back the company’s shares as individual investors. It was a smart move, made with almost total discretion, in an attempt to curb the falling share prices of Brazil’s largest cosmetics manufacturer. Devaluation had reached almost 30%, contaminating the performance of the same shares that broke successive trading records after their issuance to the market, in May 2004. Natura’s free float is around 25%.

“As of last February, we are betting on restructuring. We increased marketing investments, strengthened the innovation department and changed processes in order to achieve production gains”, said David Uba, financial vice-president. The about-face started between the end of 2007 and the start of 2008, when the company announced its restructuring plan.

Natura was going through a bad time, with reduced profits, failures in marketing strategy and a vehement wave of rumors that the company would surely be sold to Avon. The torture was merciless, especially for an environmentally correct company, accustomed to double-digit growth for several years, and always treated as one of the market’s “darlings”. The first of a series of disappointments occurred in 4Q 2006. “Their EBITDA fell 9% as compared to the same period in the previous year, while the market was expecting a growth near the historic average, of about 25%”, said Rio de Janeiro-based resource manager Dynamo, in its lengthy quarterly letter, christened “In Natura”, in which they tell of Natura’s trajectory since its trading floor debut.

What seemed to be at first an isolated misunderstanding in discount policy was confirmed, as would later be seen, as a tendency toward a deceleration of sales and lower consultant productivity, according to Dynamo. “The severity of the market’s reprehension becomes more apparent if we recall that the Bovespa went up almost 50% during that same period. That means, relatively speaking, that Natura fell by almost 60% during that period”, says Dynamo. The profit downslide, which started in late 2006, persisted throughout 2007.

But Natura, like an attentive and well-groomed forty-something, woke up before a bad night’s sleep turned into a nightmare. In February, they announced a restructuring plan to reduce costs, make operations more agile and get back to gaining market share. The changes involved cutting 200 jobs — from directors and managers to analysts and production floor workers – and put a business unit model into effect. Altogether, there are nine units, divided by geographical region (Argentina, Chile and Peru, and the block of Mexico, Colombia and Venezuela) and category. The idea is for each to be independent so that the company can eliminate hierarchies and get closer to final consumers. In parallel, to expand sales, the company bet on the creation of “Advising Natura Consultants” (CNO) – who were especially trained to provide technical support to the company's over 700 thousand promoters.

To gain efficiency, Natura intends to reduce levels of hierarchy, increase the number of distribution centers outside São Paulo (three or four are planned, to shorten delivery times) and trim down their product portfolio from the current 930 to 780 items by 2010. The cost reductions, says Uba, will let the company save on the order of R$400 million by 2010. According to the company’s plans, this money will be redirected in its entirety to marketing. “For some time, we focused on internationalization, and now we want to give priority to domestic sales”, Uba says. The company’s plans to set ashore in the United States – which consumed preliminary investments of around R$ 40 million – were postponed with the financial crisis in the world, especially in the U.S..

The restructuring has shown signs of working. “We’ve already achieved our guidance for the year, with 23% EBITDA margin over the consolidated result”, Uba says. In the past quarter, the company achieved a net profit of R$ 167.1 million, 25% higher than the same period last year. Using the same basis for comparison, the company’s gross revenues (including operations in Brazil and abroad) totaled R$ 1.1 billion, a 17.4% spike in relation to the same period in 2007. In Brazil alone, net revenues reached R$ 868.4 million, a growth of 21.4%. And EBITDA totaled R$ 236.9 million, with a margin of 27.3%, as compared with 27.1% in the same period last year.

Natura went down the typical path of a company that suffered due to its own astounding growth. Since its IPO (initial public offering, in 2004), when controlling shareholders gave up 25% of total capital in exchange for about R$ 770 million, the company has been flying high. Earnings, which in 2003 had added up to R$ 1.32 billion, jumped up to more than R$ 4 billion in 2007. The number of employees almost doubled: from 2.8 thousand to 5.1 thousand. For a company born from a dream and a domestic ideal, it was difficult to manage such size. High administrative costs and lower agility weighed against them.

Now, however, Natura seems to have made peace with the market. In their latest report on the company, the broker Fator says: “We believe that the company’s shares may have perform better than the Ibovespa in a scenario of continued high volatility, especially in exchange rates. Different from many companies, Natura has almost no exposure to derivative instruments, and their financial results have been proving predictable in recent years.”