Alpargatas, the Brazilian owner of the flip-flop sandal brand Havaianas, reported a decline in sales volumes and a bottom-line loss in the fourth quarter of 2022, rounding out a year that fell short of management expectations as inflation cut into households’ disposable income.
Havaianas in Q4
In January, overall annual inflation in Brazil was 5.77 percent, but the prices of sandals and slippers rose by 15.20 percent, according to the statistics office IBGE.
Havaianas’ revenues rose by 3.0 percent in the three months ended Dec. 31 to R$1,086 million (€194.6m) and were 4.7 percent higher at constant-currency rates. Sales in Brazil inched up by 2.2 percent to R$896.9 million (€160.7m) as the company highlighted weakness in sales to grocery stores but noted it had maintained its market share in the channel. International revenues grew by 7.0 percent, or 18.6 percent at constant rates, to R$188.9 million (€33.8m).
Top line growth at Havaianas came as an 11 percent drop in shoe volumes to 69 million pairs was more than compensated by a 17 percent rise in revenues per pair due to price increase and product mix initiatives. Volumes in Brazil declined by 12 percent to 62 million pairs. Internationally, Havaianas sales volumes increased by 7 percent to 7 million pairs.
Group level
At a group level, Alpargatas generated sales of 1,103 million Brazilian reais (€197.5m) in the quarter, up by 3.2 percent on the year earlier and 5.0 percent higher at constant currency rates. Ebitda fell by 72.3 percent to R$46.9 million (€8.4m) and recurring Ebitda slipped by 15.2 percent to R$152.6 million (€27.3m). The company reported a net loss of R$21 million (€3.8m) compared to a profit of R$303.1 million in the fourth quarter of 2021.
At constant currency rates, quarterly direct sales of Havaianas footwear grew by 20 percent in the EMEA region but fell in the U.S. and in China.
Havaianas intends to expand its monobrand stores and e-commerce in both EMEA and APAC to accelerate volume and revenue growth. Revenues in China dropped by 33 percent, as the lifting of Covid restrictions has not yet had an impact, also due to the fact the fourth quarter is a slow period for flip-flop sales. Sales in the U.S. were down by 15 percent as volumes slumped by 27 percent amid an operational restructuring and ongoing business model review in that market.
Sales in countries where the brand operates through distributors jumped by 32 percent, driven by a strong performance in the APAC region as distributors stocked up for the summer.
At Rothy’s, the native American digital brand in which Alpargatas acquired a 49.9 percent equity stake in Dec. 2021, revenues in the quarter rose by 10 percent to $54 million. The loss at the Ebitda level narrowed to $3 million from $5 million. Investments in marketing and operations of retail stores aimed at accelerating growth and gaining efficiency in the acquisition of new customers were steady at $17 million.
For the full year, Alpargatas’ sales rose by 5.9 percent to R$4,182 million (€749.0m). Ebitda declined by 26.6 percent to R$505.5 million (€90.6m) and recurring Ebitda was 9.5 percent lower at R$689.1 million (€123.5m). Havaianas sales increased by a reported 5.4 percent, or 9.3 percent at constant currency rates, to R$3,911 million (€700.7m), Rothy’s full-year revenues rose by 26 percent to $183 million.
CEO calls operational performance “disappointing”
“In 2022, our operational performance was disappointing,” said Beto Funari, CEO. “Cost and operational challenges put pressure on our financial results, which fell short of our expectations.” Aside from high inflation, sales in Brazil also suffered from a cooler and rainier spring and summer in parts of the country. This led to some customers’ building up stocks and the company’s inventory levels to rise, generating additional storage costs and write-offs for old collections and raw materials. “We entered 2023, prioritizing recovery of sustainable growth and focusing on simplification, efficiency gains and operational excellence,” Funari added.
Alpargatas ended 2022 with 958 Havaianas stores compared to 791 the year earlier and 968 at the end of the third quarter. During the fourth quarter, it added 52 Havaianas franchises in Brazil to reach 574 while the number of own stores in the country was unchanged at seven. Havaianas’ international business saw franchises decrease by 42 to 355 while the number of own stores decreased by 20 to reach 29. Alpargatas said its Havaianas store count also includes temporary stores.
