Alpargatas posted upbeat results for the first quarter of 2016, despite the ongoing low consumption rate and other economic problems in Brazil. Total revenues increased by 9.3 percent to 1,011.6 million reais (€251.1m-$281.9m) during the quarter ended March 31 for the company that owns the Havaianas and Dupé brands of rubber sandals.
Domestic sales were up by 7.6 percent to R$578.1 million (€143.5m-$161.1m). Topper and Rainha, two loss-making sports brands whose divestiture was completed on May 2, were not included in the results. On the other hand, sales of non-footwear products such as the Osklen brand of surf-inspired clothing rose by 101.4 percent in Brazil, and by 10.6 percent elsewhere.
Outside Brazil, the devaluation of the real favored the group's operations, in particular in the Europe, Middle East and Africa (EMEA) region. Revenues from the international sandals business, represented mainly by sales of Havaianas sandals to foreign distributors and through its subsidiaries in the U.S. and Europe, increased by 23.7 percent to R$235.7 million (€58.5m-$65.7m), but the sales of the group's Argentinian subsidiary remained flat at R$197.8 million (€49.1m-$55.1m).
Alpargatas sold a total of 60,993,000 pairs of sandals, 5.8 percent more than in the year-ago quarter. Volumes gained 9.0 percent to 52,273,000 pairs in Brazil, driven by purchases via the indirect wholesale and distributor channels to replace inventories liquidated through high sell-out rates. However, volumes dropped by 10.2 percent to 8,720,000 pairs in other markets due to the impact of lower sales to countries that restrict imports or the remittance of funds. In the U.S., the company said, major customers postponed their purchases to the second quarter.
In the sporting goods and textiles segment, which includes the company's licenses for the Mizuno and Timberland brands, the company sold 2,124,000 pairs of shoes, down by 25.5 percent on the first quarter of 2015, with big drops in Brazil as well as Argentina. Apparel sales decreased by 13.7 percent, although the company sold 15.3 percent more pieces of apparel.
In Brazil, the decrease in footwear sales was felt more by Mizuno, due to the fact that discounts that had been granted in the first three months of 2015 made this quarter comparatively stronger than the first quarter of 2016. On the other hand, price increases initiated by Alpargatas to improve margins were not followed by the competition.
In Argentina, the drop in footwear sales was concentrated on the Rueda brand. The volume of Topper shoes sold by the Argentinian operations declined by 19 percent, partly because of lower exports to other Latin American countries.
As previously reported, Alpargatas has decided to manufacture some models of Mizuno shoes in Brazil because of the high cost of imports due to the devaluation of the real, compounded by the anti-dumping duties on shoes imported from China. At the end of the first quarter, the first five models were being produced at the company's Santa Rita plant in the state of Paraiba.
The group had 691 stores in operation in Brazil and the rest of the world at the end of the quarter, up from 673 at the same time last year. All of them recorded higher sales on a same-store basis except its own and franchised Timberland shops, which registered a drop of 8.4 percent due to weaker demand. Sales at Havaianas stores, including its franchises in Brazil, went up by 18.2 percent because of higher sales of closed shoes and higher average prices. Havaianas sandals are now sold at 545 single-brand stores, up from 520 in the year-ago quarter.Alpargatas' gross margin improved by 2.8 percentage points to 48.1 percent, and the best score was achieved by the international sandals operations, where it grew by 4.4 points to 70.0 percent. It helped these operations reach an operating (Ebitda) margin of 36.7 percent, up by 2.9 percentage points from the year-ago period.
In Argentina, where Alpargatas operates mainly through the Topper brand, profit margins increased due to improved pricing management and higher productivity in operational expenses. The gross margin gained 3.4 percentage points to 31.6 percent, while the Ebitda margin rose by 2.6 percentage points to 14.7 percent. The situation was different in Brazil, where the gross margin edged up by 0.3 percentage points to 44.7 percent in the quarter, while the Ebitda margin lost 1.3 percentage points to 13.2 percent.
The net income of the company, which changed ownership recently as we have previously reported, jumped by 15.3 percent to R$118.4 million (€29.4m-$33.0m) in the quarter, thus delivering a net margin up by 0.6 percentage points to a nice level of 11.7 percent.
