• by Sarah Mahoney , October 30, 2008

So much for that old theory that lipstick is absolutely recession-proof: Avon Products says its sales slipped 3% in North America in the third quarter, as American women cut back on their spending. Overall, the company says revenues climbed 13% to $2.6 billion--a gain of 6% in local currency. And while net income came in at $222.6 million, compared with $139.1 million in the year-ago quarter, it still fell short of investor expectations.

The company's results were buoyed by especially strong sales in such geographic regions as Latin America and Eastern Europe, as well as the results of its increased advertising spending. And while the company says it expects to feel the negative impact of currency fluctuations worldwide and a deteriorating sales environment in North America, "we're staying the course on brand competitiveness," says chairman CEO Andrea Jung. In a webcast discussing the company's results, she described them as at "the 11th consecutive growth quarter since we began our turnaround. Our strategy is working."

She vowed that regardless of how stormy the economy gets, the company won't cut back on either its ad spending or sales-rep initiatives. "We won't manage this company for the short term," she says. "We all know how that movie ends."

Overall, beauty sales gained 15%--in part due to an 11% increase in year-over-year ad spending, to $106 million in the quarter. Ads supported such new product launches as the Anew Rejuvenate line of skin care, U by Ungaro fragrances and Pro-To-Go lipstick.

While Jung pointed out that health and beauty categories tend to be less impacted by recession, and that Avon has many product offerings at value prices, there is at least some reason to doubt the much-touted "leading lipstick indicator" theory.

While Procter & Gamble just announced that its cosmetics division--which includes the Cover Girl brand--saw double-digit sales gains in the quarter, Estee Lauder told investors it was lowering its sales and earnings forecasts for the year, citing the rapidly deteriorating global economy. (It was Lauder chairman Leonard Lauder who noted that sales of lipstick--an affordable indulgence--usually go up in times of economic uncertainty.)