The Brazilian parent of flip-flop sandal brand Havaianas and the Rothy footwear brand continues to be challenged by high inventory levels in the South American market and inefficiencies in its overall operation that are impacting sales, margins, and profitability.
Alpargatas reported a 53.1 million Brazilian reais (€9.9m) consolidated net loss in Q2 as revenues declined by 12.7 percent to R$926.4 million (€171.9m) from R$1,061.4 million in the year-ago period. Gross margin plummeted by 1,140 basis points to 40.8 percent from 52.2 percent as total pairage sold fell by 21 percent to 45 million. Results were impacted by a R$34 million (€6.3m) write-off related to raw materials and the ongoing use of third-party warehouses for inventory.
Transformation agenda
After realizing a strong need for better operation coordination and processes, the group spent much of the period establishing new objectives for its business. These measures included adjusting its production capacity, putting limits on some discretionary costs, and establishing some adjustments to its corporate structure. Alpargatas intends to reduce its annualized expenses by R$80 to R$120 million (€14.8-€22.3m) in the coming months as it waits for market inventory levels to normalize.
The company says some progress on the inventory front occurred in H1 when, by its estimate, retail inventory volume available to consumers declined by approximately 10.5 million pairs.
Havaianas’ Q2 performance
The company said the brand, ranked as the second most valuable brand in Brazil in a Istoé Dinheiro ranking, is its pillar and remains strong.
Sales fell by 12.5 percent to R$919.2 million (€170.6m), with revenues in the home market down by 12.6 percent to R$538.8 million (€100.0m), although revenue per pair rose by 8.5 percent due to year-ago price hikes and product/channel mix. Brand sales fell by 12.2 percent in the rest of the world to R$380.4 million (€70.6m), but sales per pair lifted 17.6 percent higher due to price increases in Europe and a 9.5 percent price adjustment in distributor markets. Sales in the EMEA declined by 8.9 percent to R$273.4 million (€50.7m). Ebitda slid by 96 percent to R$6.8 million (€1.3m) from R$178.2 million.
Rothy’s revenues dip
The segment generated US$1.0 million in Q2 net profit against a loss of US$8.9 million despite an 8.6 percent year-over-year drop in sales to US$53.6 million. Gross margin improved by 730 basis points to 61.7 percent, largely due to lower freight costs. Alpargatas said its focus for the business, despite a challenging demand environment, remains on improving profitability.
Store count
Alpargatas ended Q2 with 992 doors, up 85 year-over-year, which included 26 in Brazil and 59 locations in international markets. The unit growth is primarily related to a 27 percent increase in distributor/concession stores in international markets to 315 and a 5 percent growth in Brazilian franchisees to 542 locations.
