Heavy direct taxes charged by the Brazilian government, combined with high import duties and the high value of the Brazilian real, have caused Head's racquet sports products to cost between 80 and 100 percent more there than in the U.S. To help reduce the gap, Head signed a direct distribution deal with the biggest sporting goods retailer in the country, Grupo SBF, for some of its products. The star products in Head's tennis range will continue to be handled by the company's local distributor, DLD.
Grupo SBF trades in Brazil through two chains of stores, Centauro and By Tennis, and a network of franchised Nike stores. The Centauro banner covers large stores and the company's booming e-commerce platform. By Tennis has no special relation with tennis: It is a chain of smaller stores specializing in athletic footwear.
The financial results recently released by the group for the nine months ended last Sept. 30 were generally in line with expectations. Its operating revenues went up by 14.1 percent to R$808.2 million (€342.3m-$440.6m) for the period, including an increase of 186.7 percent for its centauro.com web shop to R$73.1 million (€31.0m-$39.8m).
The gross margin improved by 1.5 percentage points to 53.5 percent, and SBF ended up booking a net profit of R$16.0 million (€6.8m-$8.7m) for the nine months, 22.1 percent more than in the same period of 2010.
On a comparable store basis, sales increased by 14.0 percent during the first nine months of 2011, but the rate of increase for the full year was expected to decline to 8.9 percent. The total number of physical stores was expected to increase to 213 by the end of 2011, 24 more than at the end of 2010. That includes 152 Centauro stores, 44 By Tennis stores and 16 Nike stores.
In releasing the nine-month results, the management was predicting a 25.8 percent increase in its total gross revenues for the 2011 financial year to R$1,696 million (€718.2m-$924.5m), with online sales rising by 234 percent to R$124 million (€52.5m-$67.6m). It was budgeting an Ebitda margin of between 9.5 and 10.3 percent for the full year. The startup of a new logistic platform in the state of Minas Gerais should contribute between 4 and 5 percentage additional points of Ebitda in 2012 on sales of about R$2.3 billion (€974.0m-$1,254m).