Netshoes saw the price of its shares plunge by as much as 60 percent in the two days after the Brazilian online retailer reported that its sales increased by 0.8 percent to 396.2 million Brazilian reais (€90.9m-$107.2m) for the first quarter but its loss widened to R$60.3 million (€13.8m-$16.3m), compared with R$37.7 million in the year-ago quarter.
Operating under the Netshoes brand for sports products and Zattini for the fashion business, the Brazilian group's gross margin contracted by 2.5 percentage points to 30.2 percent. Its adjusted Ebitda amounted to a loss of R$29.0 million (€6.7m-$7.8m), compared with profit of R$3.6 million in the same quarter last year.
The turnover increase amounted to 1.9 percent in constant currencies and was driven by a jump of 4.5 percent in the group's B2C sales. The company said that this level of growth is due to its strategy to prioritize short-term profitability this year, both in Brazil and in international markets, consisting of Argentina and Mexico. But at the same time, Netshoes suffered a decline of 60.2 percent in its B2B division, which chiefly deals with supplement sales.
The number of registered members was up by 21.3 percent, reaching 23.1 million, while the number of active customers moved up by 19.8 percent, reaching 6.8 million. About 52.5 percent of the orders were placed on mobile devices, an increase of 13.6 percentage points.
The retailer's sales were up by 1.4 percent to R$360.4 million (€82.7m-$97.5m) in Brazil, with a rise of 4.2 percent for the consumer business alone. The reported turnover for the international markets amounted to R$38.9 million, which was a decrease of 4.4 percent in reais but an increase of 7.0 percent in constant currencies, mostly supported by growth in Argentina.
Netshoes reported that the consolidated gross merchandise value (GMV) increased by 5.2 percent to R$558.6 million for the quarter. The number of invoiced orders jumped by 12.8 percent to 2.8 million, 78.4 percent from repeat customers, but the average basket size declined by 2.7 percent to R$195.7.
The gross merchandise value generated by the retailer's B2C business as a whole was up by 9.8 percent to R$551.1 million, while the GMV for the B2B operation shrank by 74.5 percent to just R$7.5 million.
Netshoes said it was transitioning to a more profitable mix of revenues. The retailer's marketplace accounted for about 11.5 percent of its GMV, compared with 5.3 percent in the year-ago quarter. The number of qualified vendors on the marketplace more than doubled to reach 818 at the end of March.
At the same time, Netshoes expanded its assortment of private labels and licensed products in Brazil. They made up about 10.7 percent of the retailer's GMV, up by 1.1 percentage point. Netshoes wants to raise the share of GMV from the combination of its marketplace and private label products to 50 percent, compared with 25 percent in Brazil for the first quarter.
However, the group's operating expenses jumped by 18.5 percent for the quarter, due to extra investments to develop the marketplace, and brand-building efforts. Netshoes reported an adjusted operating loss (Ebitda) of R$13.3 million in Brazil, amounting to a negative margin of 3.3 percent, compared with a negative margin of 3.2 percent in the year-ago quarter, but the operating margin of the international operations moved up by 2.9 percent points, with improvements in both Argentina and Mexico.
Netshoes said it was still anticipating an improved financial performance. It should take advantage of a more agile integrated IT platform, which has been fully implemented since February. At the same time, the company is taking more aggressive action to bring its B2B and its international business back on track to become profitable. The retailer has been investing in its technology for the last two years, and the completion of the project allows IT staff to focus on making the system more efficient and expanding the ecosystem.
Meanwhile, Netshoes' main competitor in the Brazilian sporting goods retail market, Grupo SBF, is still delaying its planned initial public offering, for which it got an authorization late last year, with a goal to complete it during the first half of this year. The ongoing difficult economic conditions in the country seem to have led it to slow down the process.
