SAO PAULO (Reuters) -Brazilian cosmetics maker Natura &Co on Monday said its board of directors had authorized the company to search for "strategic alternatives" for its subsidiary The Body Shop, including a potential sale of the business.
The move comes after the Brazilian company in April agreed to sell its luxury brand Aesop to French cosmetics group L'Oreal at an enterprise value of $2.53 billion.
A sale of The Body Shop - valued at some 2.5 billion reais ($511 million) - is the most likely outcome, analysts at J.P. Morgan wrote, due to the Aesop divestment and the company's high focus on Latin America.
Shares in the company shot up more than 5% at one point in mid-morning trading as the market welcomed the news, which the J.P. Morgan analysts added was likely to happen "as it could trigger extraordinary dividends."
Natura opted to sell Aesop as part of a broader organizational shakeup that saw former chief executive and executive chairman Roberto Marques step down in June last year, handing over the reins to Fabio Barbosa.
Natura rapidly grew through high-profile acquisitions in previous years, including the purchase of The Body Shop from L'Oreal in 2017. However, it has struggled with profitability since, posting six consecutive quarters of losses.
Now, the company has been looking for "discipline" and deleveraging in a bid to bring back profitability.
In a call with analysts earlier this month, executives said The Body Shop had weighed on the company's bottom line as consumer behavior changed coming out of the COVID-19 pandemic.
"We do think a potential sale of The Body Shop would be positive for Natura &Co," analysts at Itau BBA wrote, because it could improve Natura's bottom line in the years ahead.
($1 = 4.8916 reais)
(Reporting by Gabriel Araujo and Kylie MadryEditing by Mark Potter)