Driven by the strong performance of Havaianas in Brazil and a 29.3 percent increase in the brand's international operations, Alpargatas' profitability surged in the fourth quarter of 2018. The Brazilian group benefited from favorable exchange rates overall, with the notable exception of Argentina, which is facing an economic crisis.
Alpargatas' consolidated net earnings jumped by 105.0 percent from the year-ago quarter to 92.4 million reais (€21.7m-$24.6m). The Ebitda margin jumped by 5.1 percentage points to 10.3 percent on 8.7 percent higher revenues of R$ 1,199.8 million (€281.5m-$319.9m).
However, the gross margin declined by 1.4 percentage points to 42.4 percent, partly due to the higher cost of rubber. It improved by 4.1 percentage points to 59.4 percent for the group's international sandals business, represented mainly by Havaianas, but its operating losses increased because of big investments for future development, especially in Asia.
Havaianas recorded a growth of 10.2 percent in volume abroad, mainly driven by increased sales in Europe, the Middle East and Asia. The revenues of the International Sandals business were up by 29.3 percent in reais, driven by higher volumes and boosted by the appreciation of the U.S. dollar and the euro during the period.
In Europe and the Middle East, revenues in the local currency increased in the quarter. Significant expansion was witnessed in markets served through distributors, e-commerce and retail. In particular, e-commerce grew by 43 percent. In direct markets, the performance was lower than in the year-ago quarter due to declines in the U.K. and Spain.
In North America, Havaianas saw revenues improve, while in Latin America & Africa, sales declined due to a weak performance in Argentina and Mexico. In Asia-Pacific, sales jumped by 21.7 percent, driven by higher sales in Thailand, Indonesia and Hong Kong, offset by a drop in China, due to the termination of a contract with a local distributor. The company will start its own operation in the country in the course of 2019.
The company has stopped breaking down its sales of sports products, which now consist mainly of its Mizuno license for Brazil and Argentina. It did say, however, that they recovered in the quarter as a result of Black Friday sales promotions, the early launch of a Holiday collection and the opening of two Mizuno outlet stores.
For the full year, revenues reached R$ 3,900 million (€915.1m-$1.0bn), up by 4.9 percent from 2017, with increased revenues from Brazil and the group's International Sandals operations. The 10.4 percent increase in Brazil was mainly driven by growth in the Sandals business. Sales in the International Sandals operations jumped by 11.3 percent, driven by the appreciation of the U.S. dollar and the euro against the Brazilian real, despite a 9.8 percent fall in volumes. In Argentina, revenues in Brazilian reais fell by 21.1 percent in 2018 because of a depressed market and the devaluation of the Argentinian peso. The gross margin inched down by 0.2 percentage points, while net income declined by 7.6 percent to R$324.0 million (€76.0m-$86.4m).
In December, the company completed the sale to Carlos Roberto Wizard Martins of a 21.8 percent interest in Alpargatas S.A.I.C., comprising the business unit related to the Topper brand in Argentina and in the rest of the world. Also in December, the group completed negotiations with an Indian company, Periwinkle Fashions Private, to set up a joint venture in India to develop the Havaianas business in the country, in collaboration with Shoezone Lifestyle.
Alpargatas also extended its licensing agreement for Havaianas eyewear with the Safilo Group up to 2024, as part of a program to expand the brand to “non-sandals” categories.