Natura &Co - Q1 2026 Earnings Analysis

Performance Highlights

Natura &Co delivered Q1-26 net revenues of BRL 4,745 million, a 7.7% YoY decline in BRL terms (-3.7% in constant currency), missing expectations as Brazil softness and Argentina's protracted recovery more than offset the ongoing rebound in Hispanic ex-Argentina markets. Group EBITDA fell to BRL 346 million at a 7.3% margin, a 790 basis point YoY contraction versus underlying Q1-25, with approximately 470 basis points attributable to BRL 221 million in non-core reorganization expenses, leaving operational deleverage and gross margin pressure accounting for the remainder.

The single most important driver of underperformance was Brazil, where revenues declined 5.5% YoY as Avon's relaunch only kicked off in mid-March and the Natura brand faced consultant base attrition and Northeast consumer weakness; Avon Brazil fell 13.8% while Natura Brazil slipped 3.0%, though Natura's sell-out growth was already outpacing the market by quarter-end. The Hispanic segment posted a negative 1.5% EBITDA margin, with BRL 146 million in severance charges accounting for 710 basis points of the deterioration, while Argentina's channel contraction following Wave 2 integration compressed gross margins across the region despite solid ex-Argentina CC growth.

Management Outlook and Forward Catalysts

Management framed Q2-26 as a continuing transition quarter, flagging the SAP go-live in June as an execution risk, while confirming that savings from the 25% reduction in administrative headcount will materialise significantly from Q2, reaching full run-rate in the second half; the company reiterated FY-26 guidance for reported EBITDA margin expansion above the 14.1% posted in FY-25 and cash generation above prior-year levels. The leverage ratio rising to 2.11x — above the stated optimal range of 1.0x–1.5x — reflects non-core cash outflows including BRL 240 million in severance, BRL 90 million in simplification costs, and a BRL 367 million Chapman litigation settlement payment, signalling that balance sheet normalisation depends entirely on earnings recovery.

The central investor debate heading into Q2 is whether cost savings and Avon's relaunch momentum can offset a still-fragile Brazil top line and persistent Argentina drag fast enough to validate the margin expansion guidance. Bulls will watch Natura Brazil's sell-out-to-sell-in conversion, Avon relaunch KPIs, and the pace of G&A savings realisation; bears will focus on leverage remaining above target, SAP implementation risk, elevated NPLs at 6.5%, and the durability of consumer spending in Brazil's high-rate environment.