NATU3.SA, Natura Cosmeticos SA (R$46.50) /Listening to Customers and Reps

NATU3.SA, Natura Cosmeticos SA (R$46.50) /Listening to Customers and Reps

Lore.Serra@morganstanley.com, Jeronimo.De.Guzman

We present our findings from a joint project with our US team that surveyed 800 women in Brazil, spread across income classes and geographies, as well as 90 reps for Natura and Avon. We compare our findings with a similar survey we conducted five years ago, to gauge the underlying trends in the beauty industry in Brazil. We also update our earnings estimates for Natura to reflect stronger near-term growth. We expect that the pace of growth in the Brazilian beauty industry will slow to 10-12% per year over the next five years, vs. the 14-15% growth pace since 2005. Our survey data suggests that a disproportionate amount of historical growth came from Class C consumers. These consumers now spend at high levels relative to their A/B counterparts, who have increased consumption at much lower rates.