Vulcabras Azaleia, which derives most of its revenues from the affordable Olympikus brand of sports shoes, has announced the start of negotiations for the acquisition of Under Armour's five-year-old Brazilian sales subsidiary. Under a joint licensing and operating agreement, Vulcabras will become the exclusive distributor and licensee of the American sports brand in Brazil for shoes, apparel and accessories.
The group, which had a regional management contract for Reebok until the end of 2015, also announced the hiring of a well-known fashion designer, Alexandre Herchcovitch, as creative director for all the brands of the group in connection with a decision to boost Olympikus' apparel division, which had been showing some growth since last year.
After posting continuously improving results for several quarters in a row, driven by Olympikus, the Vulcabras Azaleia group reported lower sales and earnings for the second quarter ended June 30, blaming them squarely on the Brazilian economy and the Brazilian truck drivers' strike in the last two weeks of May and early June.
The company was particularly affected because it manufactures virtually all its shoes in Brazil, where the country's total shoe production fell by an estimated 9.8 percent in May as compared to the previous month. The truck strike blocked the roads and compromised supplies to and from the factories for more than 15 days, adding to a weakening domestic demand that had already emerged during the first quarter of the year.
As a result, the group's consolidated net revenues declined by 9.0 percent in the second quarter as compared to the year-ago period, down to 280.8 million reais (€63.7m-$m). Athletic footwear was the worst-hit category, with a drop of 14.7 percent to R$213.1 million (€48.3m-$54.6m).
On the other hand, the group experienced a recovery in the women's shoe segment, where it operates under the Azaleia and Dijan brand names. The group's sales of women's footwear grew in the quarter by 15.1 percent to R$41.4 million (€9.4m-$10.6m), thanks to higher average prices, a reversal in the domestic market and an improved performance in foreign markets. While they represented only 1.1 percent of the total turnover, sales of apparel and accessories went up by 57.6 percent.
In terms of volume, the group's shoe deliveries fell during the quarter by 11.9 percent to 3.2 million pairs in the athletic footwear segment. Recovering from a weak first quarter, a milder drop of 1.9 percent to 1.2 million pairs was registered in the women's footwear segment. Sales of safety shoes and other types of footwear increased by 2.4 percent to 958,000 pairs.
Across the group, sales in the domestic market fell by 10.9 percent to R$246.2 million (€55.8m-$63.1m). While they are still minimal, sales outside Brazil grew by 7.5 percent to R$34.6 million (€7.8m-$8.9m), aided by the devaluation of the Brazilian currency. The only drag was a drop in sales of athletic shoes in Argentina, due to the devaluation of the peso.
The group's gross margin fell by 4.1 percentage points to 34.4 percent during the period. The Ebitda margin decreased by 11.5 percent to 15.7 percent, due also to an extraordinary gain in the same quarter of 2017. Net earnings dropped by 35.9 percent to R$33.0 million (€7.5m-$8.5m), but the company indicated that they were relatively flat on an adjusted basis.
Advertising expenses were raised by 2.9 percent. Olympikus intensified its marketing spend during the quarter, launching a campaign on the Brazilian SportTV channel that was aired during the FIFA World Cup. It also sponsored a running event with Red Bull.
Meanwhile, Azaleia launched its own e-commerce channel in April, working in partnership with Zattini, the fashion arm of the Netshoes group. Bloggers directed customers to the website, making discount vouchers available on their social networks.