To meet the growing demand for Havaianas sandals, the Brazilian company has started the construction of a modern new factory at Montes Claros, in the state of Minas Gerais. Located on 50,000 square meters of land, it is scheduled to start up with a capacity of up to 100 million pairs a year, which may be raised to 150 million pairs in five years' time.
The investment in this new project, whose initial cost is estimated at 200 million Brazilian reais (€83.0m-$109.9m), goes with a series of other initiatives intended to improve production planning, sourcing, logistics and other elements of a new “intelligence system” that should allow Alpargatas to be more competitive internationally and to speed up the decision-making process.
In another strategic move, Alpargatas took over its distribution in the U.S. last Jan. 1, as it already did in many European countries 18 months ago. It will now deal directly with the 2,000-odd independent stores that were marketing its Havaianas sandals in the country, instead of going through an importer. At the same time, it is entering the markets of India, Pakistan and Indonesia, adding to the 79 other countries where Havaianas is already sold.
Alpargatas' structural reorganization in Brazil, combined with a weakening domestic market, led the company to a sales decline in the fourth quarter of 2011. The poor quarterly results affected those for the full financial year, but the management indicated that the first quarter of 2012 would be better.
For 2011, the company has reported a 15.4 percent increase in total revenues to 2.6 billion reais (€1.08bn-$1.43bn), but the growth was mostly due to higher average prices and a better price mix. In terms of volume, the number of pairs of shoes and units of clothing sold increased by only 2.3 percent to a total of 249.6 million pairs or units. Of those, 211.4 million pairs or units were sold in Brazil, 2 percent more than in 2010, but with a decline of 3 percent in the fourth quarter.
The number of Havaianas and Dupé sandals sold in Brazil grew by 2.4 percent to 194.6 million in 2011, indicating a gain in market share, and the average price went up by 10 percent. The group also sold 10.8 million pairs of sports and work shoes nationally under brands such as Mizuno, Timberland, Topper, Rainha and Séte Leguas (more on this in SGI Europe). The number of franchised Havaianas stores grew by 80 to 211 last year, and the brand's online shop recorded a sales increase of 238 percent.
Compensating for wage increases and a 20 percent jump in the cost of rubber in the course of the year, the higher average prices allowed Alpargatas' Brazilian operations to keep their gross margin stable at 48.2 percent of sales. Without the higher cost of commodities, the operating margin would have remained constant, too, but an increase of R$15.5 million (€6.4m-$8.5m) in advertising and marketing expenditures and other strategic investments caused it to decline to 18.9 percent before amortization, compared with 21.3 percent the year before.
Brazil still represents 67 percent of Alpargatas' revenues. Outside the country, the company sales rose by 3.8 percent in volume but fell by 10.3 percent in reais to R$715.9 million (€297.0m-$393.3m). In local currencies, they declined by 1.2 percent in the U.S. but rose by 28.5 percent in Argentina, by 35.6 percent at Alpargatas Europe and by 20.9 percent to distributors in other countries.
Excluding Argentina, Alpargatas' foreign operations generated 15.6 percent higher revenues of R$238.4 million (€98.9m-$131.0m) last year, with a 7.3 percent increase in volumes, but they also produced an operating loss before amortization (Ebitda) of about R$100,000 (€41,500-$54,900), because of higher overheads in Europe and a number of strategic investments designed to improve the image of Havaianas.
The company opened Havaianas stores in London, Paris and Valencia and organized special customization events at leading department stores in Europe. It developed special collection such as the one co-branded with Missoni. As a result, the awareness of the brand in the major European markets grew to 51 percent last September, compared with 36 percent one year earlier. The notoriety rate in the U.S. was lower at 33 percent.
Overall, the group booked a slight increase in its consolidated Ebitda to R$404.5 million (€167.8m-$222.2m) last year, representing a reduced operating margin of 15.7 percent. The net profit reached a record of R$307.4 million (€127.5m-$168.9m), 1.4 percent higher than in 2010 and equal to 12 percent of sales, in spite of a decline of 15.4 percent in the fourth quarter.
Alpargatas raised its stake in its Argentinian company further to 91.5 percent last year, and it is striving for full ownership. The management reiterated its interest in further acquisitions. As of last Dec. 31, the company had net cash of R$671 million (€278.4m-$368.6m) and financial debt of only R$235.9 million (€97.9m-$129.6m).