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When ethical beauty entrepreneur Anita Roddick sold The Body Shop to L’Oréal in 2006, cynics predicted it would lose its mojo. Curiously, the damage appears to have been worse under the subsequent ownership of Brazil’s Natura & Co than the French consumer giant.
Munich-based private equity group Aurelius is stumping up an enterprise value of just £207mn for The Body Shop. That is about a fifth of what Natura paid to L’Oréal in 2017.
The payout looks more paltry if you strip out a £90mn earn-out embedded in the sales price. This is conditional on the business hitting performance targets.
This means the £117mn Natura will receive immediately would value The Body Shop at about two times last year’s ebitda. Natura itself trades on around 11 times while L’Oréal is on 25 times.
The collapse in valuation follows a long period of poor sales for The Body Shop. The chain, which has about 2,500 shops across more than 70 countries, pulled in R$4.4bn (£724mn) in revenue last year, down 24 per cent from 2021.
Ebitda tumbled to R$363.6mn from R$1bn in 2021 as margins fell by more than half to 8.3 per cent. All three metrics have fallen another step lower in the first nine months of this year.
The Body Shop’s concept of “retailing with a conscience” was revolutionary in the 1970s. Competitors have since caught up. These days, everyone is selling natural beauty products in sustainable packaging.
The chain has struggled to adapt to the digital age. The rise of social media has changed how people buy beauty products. YouTube make-up tutorials and TikTok influencers drive sales.
This makes The Body Shop’s single-brand, speciality store model a tough business to run. This is reflected in its slim ebitda margin of 3.4 per cent, which compares with 10.8 per cent for Natura’s own brand.
Aurelius should unlock value by slimming down The Body Shop’s vast bricks and mortar retail network and boosting the brand’s online presence. It should also invest in innovation in higher-margin skincare products. This 1970s brand needs a millennial-friendly makeover.
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