Natura's Q2 profit craters as a software migration undercuts its Brazil turnaround

Natura &Co's second-quarter profit collapsed to 35 million reais, a roughly 92% drop from the 446 million reais reported a year earlier, as a botched software migration and a stalled turnaround compounded pressure on the company's home market. Consolidated net revenue reached 5.17 billion reais for the April-to-June period, down 9.1% year over year, landing close to analyst expectations even as the profit line badly missed Citi's forecast of 137 million reais.

Brazil, still the company's largest market, produced 3.07 billion reais in revenue, a 14.8% decline. Executives on the earnings call attributed much of that drop to causes inside the company rather than the broader economy: stockouts triggered by a mid-quarter migration to SAP's S/4 system, the end of a São Paulo tax regime known as ICMS-ST that added roughly two percentage points of headwind to direct-to-consumer revenue, and an ongoing shift from a franchise model to sell-out accounting alongside a rework of consultants' digital storefronts. A UBS analyst flagged the 25% payroll reduction the company carried out between the fourth quarter of 2024 and the first quarter of 2026 as an added source of execution risk during a systems transition of this scale.

The segment breakdown showed the strain unevenly distributed. The Natura brand's revenue fell 8.2%, Avon dropped 11%, and the Casa & Estilo division, which sells home and lifestyle products, fell 27.6%. EBITDA came in at 620 million reais, a margin of 12%, down 200 basis points from a year earlier. A 320-million-real mark-to-market loss on hedged dollar debt, driven by the real's appreciation, added further pressure to the bottom line. Net debt stood at 3.9 billion reais, pushing leverage to 2.06 times EBITDA against a company target of 1.0 to 1.5 times.

Spanish-speaking Latin America told a different story. Revenue there rose 0.7% in nominal terms and 7.2% at constant currency, with the EBITDA margin nearly doubling year over year, enough to partly offset the weakness in Brazil. Executives also pointed to consumers trading down to lower-priced, daily-use categories within Brazil as a further drag on the quarter.

The results complicate the turnaround narrative Natura had built through 2025, when the company reported a roughly 1-billion-real net income and a 14.6% margin after completing what it called a corporate streamlining following the sales of Aesop to L'Oréal for about $2.5 billion and The Body Shop to Aurelius for roughly £207 million. Those divestitures left Natura focused on its namesake brand and Avon across Latin America. The first quarter of 2026 had already produced a larger net loss of 445 million reais, suggesting the erosion predates the software migration cited for the second quarter.

The framing of Brazil as the source of the trouble sits awkwardly next to the rest of the market. Brazilian consumer confidence softened in 2026 but did not collapse, and L'Oréal reported strong growth in Brazil and globally over the same first half, even as the central bank held its benchmark Selic rate near 14.25% to 14.75% with inflation still running above target. Against that backdrop, Natura's swing from a nearly billion-real annual profit to a single quarter of 35 million reais reads less like a story about the Brazilian consumer and more like one about a company mid-migration, still relearning how to keep its shelves stocked.