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1
[1]
2Q04 Earnings Results
07/27/2004
-1-
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São Paulo, July 27, 2004 ­ Natura Cosméticos S.A. (Bovespa: NATU3) announces
today its results for the second quarter 2004. Financial and operational information
included in this report is presented on a consolidated basis, according to the
dispositions of the Brazilian Corporate Law, except when otherwise indicated.
Comparisons refer to the second quarter 2003 (2Q03), unless otherwise indicated.
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·
2Q04 unit sales increased 27.9%, compared to the same period
last year
·
Net revenues posted an increase of 33.0%, reaching R$ 428.5
million in 2Q04
·
Gross margin was 65.9% in 2Q04, compared to 62.8% Q-o-Q
·
2Q04 EBITDA reached R$ 102.2 million, representing 51.5%
growth when compared to the same period 2003
·
Net income in 2Q04 was R$ 78.8 million, compared to R$ 11.9
million in the same period last year. In the first half of 2004, net
income was R$ 123.5 million (R$ 16.9 million in 1H03)
·
The number of Natura active consultants in Brazil was 366.9
thousand as of June 30, 2004 (16.1% growth Y-o-Y)
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(1)
Number of consultants in our operations in Argentina, Chile and Peru
n/a not applicable
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In R$ million
2Q04
2Q03
% Change
Units Sold (in million)
46.3
36.2
27.9
Gross Revenues
617.1
462.8
33.3
Net Revenues
428.5
322.2
33.0
Gross Profit
282.6
202.4
39.6
Gross Margin (%)
65.9
62.8
EBITDA
102.2
67.4
51.5
EBITDA Margin (%)
23.8
20.9
Net Income
78.8
11.9
562.3
Net Debt/(Investments)
(84.6)
94.7
n/a
Active consultants at the end of period -
Brazil (in thousands)
366.9
316.1
16.1
Active Consultants (1) at end of period -
Latin America (in thousands)
22.0
16.8
31.5
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2
[2]
2Q04 Earnings Results
07/27/2004
-2-
1.
Consolidated Gross Revenues

Natura's 2Q04 consolidated gross revenues were R$ 617.1 million (R$ 462.8 million
in 2Q03), representing 33.3% growth.
1H04 consolidated gross revenues reached R$ 1,092.7 million, posting a 35.3%
increase compared to the first half of 2003 (R$ 807.7 million).

The graphs below demonstrate a breakdown of our consolidated gross revenues by
region and category in 1H03 and 1H04:
























(1) - Fragrances, makeup, creams and lotions, and sunscreen.
(2) ­ Hair care products, soaps, deodorants, shaving products and oral hygiene products.
(3) ­ Basically resale support material, samples, demonstrators, accessories (cosmetics bags, hand bags, etc.), sales by Flora
Medicinal, among others.


Gross revenues in the domestic market reached R$ 598.2 million in 2Q04 (R$ 452.1
million in 2Q03), improving 32.3%. This growth was driven by the 27.5% increase in
the number of products sold and the average price adjustment of 6.2%, at the end of
March.

Breakdown by Region ­ 1H03
2.4%
Breakdown by Region ­ 1H04
97.6%
97.0%
3.0%
Brazil
Latin America
Breakdown by Category ­ 1H03
4.6%
27.9%
67.6%
Breakdown by Category ­ 1H04
3.7%
67.8%
28.5%
Others (3)
Personal Hygiene (2)
Cosmetics (1)
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3
[3]
2Q04 Earnings Results
07/27/2004
-3-
The increase in sales reflects the success of our strategy in recent years: greater and
more diversified marketing efforts, investments in innovation, sales channel evolution
and higher productivity.

The innovation index (internal methodology that measures the proportion of products
considered innovative, launched in the last 24 months, in relation to total revenues in
the period) increased from 33.5% in 2Q03 to 42.7% in 2Q04.
The number of active consultants increased 21.4%, while productivity increased 6.7%
when comparing periods.

2.
Costs and Expenses

Costs ­ The cost of sales in relation to net revenues decreased from 37.2% in 2Q03
to 34.1% in 2Q04. This decrease is essentially related to the: (i) appreciation of the
Brazilian Real against the US dollar, Y-o-Y, which benefited raw material costs by
approximately 30% (direct imports: 5%, and products indexed to hard currencies:
25%), (ii) change in tax legislation (Law No. 10,865), which allowed the Company to
take credits on PIS and Cofins (taxes on revenue) incorporated in prices of materials
acquired starting May 1, 2004, and (iii) scale gains. In addition, the average price
adjustment of 6.2% in March 2004 offset the average increase in other production
costs.

The table below presents the components of cost of sales as a percentage of net
revenue for the respective periods:
(1)
"Other costs" include electric energy, water, gas, consulting, IT services, etc
.
The increase in "Other costs", above the growth in net revenues, was due to the
reclassification of costs previously classified as labor, due to the outsourcing of
engineering services.

Selling Expenses ­
in relation to net revenues, selling expenses decreased from
30.8% in 2Q03 to 29.9% in 2Q04. This improvement was due to a 6.7% increase in
our consultants' productivity and the dilution of fixed costs.
Composition of Cost of Sales
(% of Net Revenue)
2Q04
2Q03
Raw material
26.9
29.7
Labor
2.4
2.7
Depreciation
1.2
1.6
Other (1)
3.5
3.2
Total
34.1
37.2
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4
[4]
2Q04 Earnings Results
07/27/2004
-4-
Administrative Expenses ­ in relation to net revenues, administrative expenses
represented 13.5% in 2Q04, compared to 13.6% in 2Q03. This percentage remained
practically constant despite the dilution of fixed costs, mainly due to: (i) expenses
referring to the process of going public (not including commissions to banks) and (ii)
an increase in the provision for employee profit sharing, reflecting the growth in
income above the rate of sales growth.
3.
EBITDA

2Q04 EBITDA was R$ 102.2 million (R$ 67.4 million in 2Q03), representing a 48.7%
growth. 2Q04 EBITDA margin was 23.8%, compared to 20.9% in the same period
last year. 1H04 EBITDA reached R$ 184.5 million, 67.5% higher than in the first half
of 2003. The EBITDA margin grew from 19.6% in 1H03 to 24.3% in 1H04.

4.
Net Income
2Q04 net income generated was R$ 78.8 million (R$ 11.9 million in 2Q03). Among
other factors, income improvement was due to: (i) significant growth in revenue and
margin described previously, (ii) reduction in average net indebtedness, benefiting
financial income and (iii) the end of subordinated debenture participation in income,
as a result of their capitalization on March 2, 2004.

5.
Debt and Cash




(1) Includes provision for adjustment on swap operations.

The Company ended 2Q04 with a negative net debt of R$ 84.5 million, against a
R$ 94.7 million positive net debt in 2Q03. The reduction in our net indebtedness was
basically due to cash generation and the capitalization of R$34.4 million in debentures
placed by BNDESPAR (conducted in May 2004).

6.
Investments

Investments in property, plant and equipment in 2Q04 totaled R$ 16.2 million
(R$ 22.7 million in 1H04). The main investments are concentrated in the construction
of a new vertical warehouse, which will allow the Company to increase its raw
material and finished product storage capacity by approximately 120%. In the first
half of 2003, R$ 12.5 million had been invested.

In R$ million
6/30/2004
6/30/2003
Gross debt (1)
105.3
167.0
Cash and banks and Temporary
Cash investments
189.8
72.3
Net debt
(84.5)
94.7
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5
[5]
2Q04 Earnings Results
07/27/2004
-5-
7.
Operations in Latin America (Argentina, Chile and Peru)








Net revenues (in US dollars) in Latin American operations grew 55.1% in 1H04 Y-o-Y.
This growth is the result of our intensified marketing efforts and the increase in the
operations' sales structure.
Loss from operations as a percentage of net revenue decreased from (28.6%) in
1H03, to (19.7%) in 1H04. The slight increase in the absolute value of the loss is due
to the expansion of our sales force in the period.

In terms of local currency, growth in net revenues weighted according to each
country's share was 48.9% in the comparison of periods.


8.
Listing of Shares on Bovespa

The listing of Natura shares on the São Paulo Stock Exchange BOVESPA ­ (NATU3)
occurred last May 26 at the price of R$ 36.50 per share. On the first trading day,
Natura shares appreciated 16% (closing price: R$ 42.20 per share) and trading
volume was R$ 166 million, or 14% of the volume traded on the exchange that day.

The average volumes traded in June and July were as follows:

* Percentage of total number of trades on Bovespa.
** Percentage of financial trading volume on Bovespa.

By the end of the share placement, Natura had nearly 5,000 shareholders, including
approximately 4,800 individual shareholders.

Natura's share price before the closing of this comment was R$53.30 (07/23/04),
having appreciated 46.0% since the beginning of trading, confirming the strong
interest in the Company displayed by investors.
1H04
1H03
% Change
Units sold (in million)
932
62.4
Net revenues
7.6
4.9
55.1
Loss from operations
(1.5)
(1.4)
Operating margin (%)
(19.7)
(28.6)
1,514
7.1
-
Summary of Results - US$ million
Period
Nº of average
daily trades
Percentage*
Daily average
volume (R$ 000)
Percentage**
06/01 to 06/15
204
0.4%
12,212
1.4%
06/15 to 06/30
92
0.2%
7,318
0.6%
07/01 to 07/15
93
0.2%
3,815
0.3%
07/16 to 07/23
106
0.2%
4,293
0.4%
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6
[6]
2Q04 Earnings Results
07/27/2004
-6-
The performance of Natura shares (NATU3) in the period from May 26 to July 23 is
shown in the graph below:













In this first quarterly report, we express our gratitude to all the employees, who have
dedicated themselves to support a truly Brazilian company, and to our long-time and
new shareholders, who will certainly continue participating actively in Natura's
evolution.

9. Dividends and Interest on Capital

The Board of Directors, in a meeting held on July 27, 2004, approved the distribution
of dividends and payment of interest on capital in the total gross amount of
R$ 86,765.7 thousand, corresponding to R$ 1.023774714 per share, and in reference
to the first half of 2004, as follows: (i) R$ 73,332.9 thousand in the form of
dividends, corresponding to R$ 0.865276623 per share, free of taxes, and (ii)
R$
13,432.8 thousand in the form of interest on capital, corresponding to
R$ 0.158498091 per share, or R$ 0.134723377 per share, net of income tax, except
for shareholders who have tax immunity or exemption.
Dividends and interest on capital will be paid to the shareholders existing as of
August 3, 2004, and credited to their bank accounts on August 16, 2004.
Performance of NATU3 vs. Bovespa Index
46.0%
R$53.30
14.5%
21,591 points
100
110
120
130
140
150
160
5/25
5/30
6/4
6/9
6/14
6/19
6/24
6/29
7/4
7/9
7/14
7/19
Natu3
Bovespa Index
Base 100- 5/25/04
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7
[7]
2Q04 Earnings Results
07/27/2004
-7-

10. Conference Calls

English:
Thursday, July 29, 2004
11:00 a.m. ­ US ET (New York)
Tel:
+1
(973)
582-2757
Portuguese:
Thursday, July 29, 2004
9:00 a.m. ­ US ET (New York)
Tel: +55 (11) 4613-0501

Live webcast of the conference calls on the Company's website.
For additional information, please access the Company's website ­
www.natura.net/investidor
, or contact our Investor Relations Area (Helmut Bossert,
helmutbossert@natura.net, tel. (11) 4446-2180).


This press release contains forward-looking statements. Such statements are not statements of historical fact, and
reflect the beliefs and expectations of the Natura's management. The words "anticipates", "wishes", "expects",
"estimates", "intends", "forecasts", "plans", "predicts", "projects", "targets" and similar words are intended to identify
these statements, which necessarily involve known and unknown risks and uncertainties. Known risks and
uncertainties include, but are not limited to, the impact of competitive products and pricing, market acceptance of
products, product transitions by the Company and its competitors, regulatory approval, currency fluctuations,
production and supply difficulties, changes in product sales mix, and other risks. This press release also includes pro-
forma information prepared by the Company for information and reference purposes only, which has not been
audited. Forward-looking statements speak only as of the date they are made, and the Company does not undertake
any obligation to update them in light of new information or future developments.

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8
[8]
2Q04 Earnings Results
07/27/2004
-8-
11. ANNEX I ­Income Statement

Income Statement
Natura Cosméticos SA - Consolidated (R$ 000)
2Q04
% net
revenue
2Q03
% net
revenue
VARIATION
Gross operating revenues
617,101
462,811
33.3%
Taxes on sales, returns and rebates
(188,557)
(140,565)
34.1%
Net operating revenues
428,544
100.0
322,246
100.0
33.0%
Cost of sales
(145,934)
34.1
(119,850)
37.2
21.8%
Gross profit
282,610
65.9
202,396
62.8
39.6%
Operating (expenses) income
Selling
(128,344)
29.9
(99,191)
30.8
29.4%
General and administrative
(57,999)
13.5
(43,691)
13.6
32.7%
Management compensation
(2,089)
0.5
(1,246)
0.4
67.7%
Income from operations before financial effects
94,178
22.0
58,268
18.1
61.6%
Financial expenses
(5,764)
(31,697)
-81.8%
Financial income
6,542
21,281
-69.3%
Income from operations
94,956
22.2
47,852
14.8
98.4%
Nonoperating income (expense)
(577)
(0.1)
39
0.0
nm
Income before debenture participation
94,379
22.0
47,891
14.9
97.1%
Debenture participation
-
-
(27,024)
8.4
-100.0%
Income before taxes on income
94,379
22.0
20,867
6.5
352.3%
Income and social contribution taxes
(15,562)
3.6
(8,976)
2.8
73.4%
Income before minority interest
78,817
18.4
11,891
3.7
562.8%
Minority interest
-
-
10
0.0
-100.0%
Net income
78,817
18.4
11,901
3.7
562.3%
nm - not measurable
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9
[9]
2Q04 Earnings Results
07/27/2004
-9-
12. ANNEX II ­ Consolidated Balance Sheet

Natura Cosméticos SA - Consolidated (R$ 000)
BALANCE SHEETS AS OF JUNE 30,2004 AND MARCH 31, 2004
ASSETS
06/2004
03/2004
LIABILITIES AND SHAREHOLDERS' EQUITY
06/2004
03/2004
Loans and financing
24,300
39,716
Cash and banks
32,449
11,700
Domestic suppliers
64,846
60,821
Temporary cash investments
157,299
110,497
Foreign suppliers
1,983
404
Trade accounts receivable
162,071
166,878
Payroll and related charges
45,046
29,380
Inventories
98,287
89,293
Taxes payable
47,299
55,225
Recoverable taxes
13,518
10,457
Dividends
73,333
-
Advances to employees
5,010
6,926
Interest on capital
11,418
-
Deferred income and social contribution taxes
21,462
21,663
Other payables
23,091
35,377
Other receivable
12,172
11,810
Reserve for losses on swap contracts
1,016
2,839
Total current assets
502,268
429,224
Total current liabilities
292,332
223,762
Advance for future capital increase
2,689
-
Tax incentives
1,492
1,492
Loans and financing
79,870
101,181
Deferred income and social contribution taxes
15,914
11,457
Reserve for contingencies
48,063
35,578
Escrow deposits
19,635
17,118
Other payables
872
8,603
Other receivables
3,438
2,379
Total long-term liabilities
128,805
145,362
Total long-term assets
43,168
32,446
Minority interest
8
8
Investments
2,670
2,739
Capital
230,762
196,371
Property, plant and equipment
263,192
256,333
Treasury shares
(3,554)
(3,762)
Total permanent assets
265,862
259,072
Capital reserves
114,947
110,714
Profit reserves
3,629
3,629
Retained earnings
44,369
44,658
Total shareholders' equity
390,153
351,610
TOTAL ASSETS
811,298
720,742
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
811,298
720,742