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No Love for Jung as Avon Surges (Update 1)

(Updated with analyst comments)

NEW YORK ( TheStreet) -- There is no love for Andrea Jung among Avon Products (AVP - Get Report) shareholders.

Avon shares were surging 5.5%, the most since July 2009, to $17.02 after the cosmetic company announced Tuesday that Chief Executive Officer and Chairman Jung would step down as CEO in 2012 and help the company find a replacement.

Jung, the only woman on Apple's (AAPL - Get Report) board, has overseen the doubling of Avon's revenue since she became CEO and chairman in 1999. She will remain on the New York-based company's board as executive chairman, according to a statement yesterday.

"A new CEO will provide a fresh lens," Jung, 53, said in the statement. "I believe the time is right to separate the Chairman and CEO roles and I look forward to continuing to serve Avon as Chairman as we address the company's growing scale and opportunities."

The management shake-up comes as the 125-year-old company's stock heads toward its second straight year of declines -- the first back-to-back annual drop since 1988. Avon's shares have dropped 44.5% this year through Tuesday and slid 7.8% in 2010 as the company struggles to transition into the era of e-commerce.

Avon announced earnings and sales on Oct. 27 that fell short of analyst estimates for the seventh time out of the last nine quarters as the company struggled with slowing sales. Net income dropped to $164.2 million, or 38 cents a share, in the third quarter, from $166.7 million, or 38 cents, a year earlier.

"Yesterday's announcement marks just the first step on what will likely be a very long and bumpy road toward a stronger, more stable and sustainable revenue and earnings stream," Barclays analyst Lauren Lieberman wrote in a note on Wednesday. "We like that the Board seems to inherently recognize the fragility of the direct selling model."

The direct-selling business model, which involves 6.5 million sales representatives selling the company's products door to door, in the past gave Avon a price advantage over its competitors that relied on lower retail margins in traditional sales outlets such as department stores and pharmacies.

However, in today's era of e-commerce Avon has had trouble competing in the online sales space.

"We think Avon needs to look at the internet as a primary source of both competition and potential competitive advantage," Lieberman wrote. "A truly "modernized" Avon model would have the order processing & logistics capabilities necessary to mirror the efficiency and pace of online shopping."

Avon's cosmetic competitors fell. Estee Lauder (EL - Get Report) was falling 2% to $105.43. The shares are up 33.4% this year through yesterday.

Estee Lauder reported Nov. 3 net income rose 46% to $278.6 million from $194.9 million a year earlier.

Revlon (REV - Get Report) was declining 3.4% to $14. L'Oreal declined 2.5% to 76.73 euros. Elizabeth Arden (RDEN - Get Report) was slumping 3.8% to $34.56.

-- Written by Kaitlyn Kiernan in New York.

>To contact the writer of this article, click here: Kaitlyn Kiernan

To follow the writer on Twitter, go to @Kaitlyn_Kiernan.

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