The parent company of Havaianas has hired an international consultancy to review the brand's strategic plan in order to accelerate its internationalization and to capture new opportunities for growth in the domestic Brazilian market. Alpargatas is also planning to appoint an executive digital director in the coming months to drive its digital transformation.
Meanwhile, Alpargatas has restructured its Havaianas business by creating dedicated structures for five major markets: Brazil; Europe, Middle East and Africa (EMEA); North America; Asia-Pacific; and Latin America and Africa. A separate business unit takes care of the group's lower-price brand of sandals, Dupé. These entities are supported by global departments for marketing and products; design and innovation; and business analysis and planning.
The Latin American structure is new, and it includes a new office in Colombia. Alpargatas is also opening a new office in Hong Kong as part of its internationalization. The North American operation is being reorganized under the management of Eno Polo, who recently left the Global Brands Group after running Havaianas' European operations.
The Alpargatas group reported a 3.6 percent increase in its overall net revenues to 890.6 million Brazilian reais (€201.5m-$228.4m) in spite of the transportation strike that paralyzed the economy in Brazil at the end of May, affecting in particular the supply of raw materials to its factories as well as its overseas shipments.
To cope with the situation, the company rapidly decided to suspend production, giving workers vacation shutdowns of between seven and ten days and postponing equipment maintenance. By the end of the quarter, one million pairs of sandals were still waiting for shipment to foreign markets, especially in Latin America and the Asia-Pacific region, but Alpargatas noted that there were no cancellations of customers' orders for Havaianas sandals. However, clients did cancel orders for some of the group's licensed Mizuno products.
The strike also affected the sell-out of the group's products in Brazil during and after the strike, the company noted, but its sandals business performed well in the country because of a better product turnover and the launch of a new Havaianas collection that was well received by the market.
The volume of sandals delivered to international markets during the quarter declined by 21.3 percent to 7.5 million pairs. On the other hand, their deliveries in the domestic market rose by 21.5 percent to 40.0 million pairs in spite of the strike, which forced the company to defer the billing of about four million pairs of sandals and 60,000 pairs of Mizuno footwear during the month of June.
Alpargatas has the Mizuno license for Brazil and Argentina, and it owns the rights to the Topper brand of sports products In Argentina. The group's total sales of sports footwear were off by 8.4 percent to R$1,109 million (€246.9m-$281.7m) in Brazil during the quarter, but they went up by 6.5 percent to R$1,246 million (€277.4m-$316.5m) in Argentina. Sales of sports apparel declined by 12.6 percent to R$292 million (€65.0m-$74.2m) in Brazil and increased by 4.3 percent to R$436 million (€97.1m-$110.7m) in Argentina.
The liberalization of shoe imports in Argentina allowed the group to Improve its presence in the local market. However, the strong devaluation of the Argentinian peso in April affected the sell-in of imported products, leading the company to re-evaluate its manufacturing strategies for that market.
The company's total sales rose by 8.5 percent in Brazil to R$483.5 million (€109.4m-$124.0m) in the quarter, in spite of lower sales of Osklen and licensed Mizuno products, leading to a slightly better gross margin of 42.5 percent and an increase of 2.3 percentage points in the Ebitda margin to 7.4 percent. Average selling prices went up. The company's Havaianas stores recorded a 5.1 percent increase on a same-store basis and e-commerce surged by 47 percent.
Alpargatas' sales in Argentina declined by 10.0 percent to the equivalent of R$159.7 million (€36.1m-$40.9m), generating a lower gross margin of 23.7 percent and a lower Ebitda margin of 4.8 percent.
The balance of the group's operations, represented by its international sandals business, raised its revenues by 4.6 percent to R$247.4 million (€56.0m-$63.4m), thanks largely to the depreciation of the real. The gross margin improved by 2.0 percentage points to a particularly high level of 70.7 percent, while the Ebitda margin declined by 0.7 percentage points to 19.4 percent.
In local currencies, sales declined in three of the four regions where Alpargatas operates with its Havaianas brand. They improved by 1.5 percent in EMEA, thanks to better results in France and Germany. They declined in North America because of a restructuring of operations, with lower sales in the less profitable wholesale and off-price channels. The Brazilian truck strike caused sales to drop in Latin America, Africa and Asia-Pacific.
Across the group, the gross margin improved by 1.4 percentage points because of a better product mix, with sandals representing 70 percent of domestic revenues and 66 percent of global revenues. The adjusted Ebitda margin increased by 0.8 percentage points to 10.3 percent, but because of exceptional charges of R$27.5 million (€6.2m-$7.1m) and foreign exchange losses, the quarterly consolidated net profit of the group fell by 66.4 percent to R$18.3 million (€4.1m-$4.7m).