Alpargatas has come to generate about 30 percent of its turnover outside Brazil, and its foreign business is expanding. The company booked a 26 percent increase year-on-year to 7,088,000 pairs during the third quarter in the volume of shoes sold by its subsidiaries in Europe and the U.S. and to its distributors in other countries. Its international sales were up by 15.9 percent in Brazilian reais to a total of R$86.9 million (€26.9m-$33.8m) for the quarter.
Sales of its Havaianas and Dupé sandals in Europe, the Middle East and Africa (EMEA) declined by 4.8 percent in euros, due to lower volumes, but they were up by 24.4 percent for the first nine months of the year. The company's EMEA business, which is about three times bigger than its business in the U.S., benefited in part from a 50 percent boost in e-commerce. Havaianas' European website, which is run by a third-party provider, is available in 14 languages.
Higher sales were also recorded in Europe at Havaianas stores and with key accounts, particularly in the U.K. and Italy. Furthermore, Alpargatas EMEA signed new direct contracts with Zalando and Amazon following the takeover of the distribution of its products in Germany, Austria and the Benelux countries.
Alpargatas continued to invest around 14 percent of sales on marketing in Europe. Among other initiatives, it conducted the first TV and cinema campaign for Havaianas in Spain and Portugal. It conducted hotspot promotions at fashionable beach resorts, such as Ibiza in Spain, and had a presence at the Cornwall Surf Festival in England.
Big investments in new store openings, particularly in the U.S., and other brand-building initiatives resulted in an operating loss for the third quarter in its international operations, but for the nine months, the operating margin before amortization (Ebitda) was up by 5.4 percentage points to 22.7 percent on 28.8 percent higher sales of R$426.4 million (€132.1m-$165.7m).
Higher exports were recorded in India, a market that the group entered in 2012, and in Angola, Argentina, Cuba and the Dominican Republic. Together, the group's sales in the U.S. and in export market grew by 31.4 percent in dollars in the third quarter, but by only 6.6 percent for the first nine months of the year.
Alpargatas booked a 50.6 percent increase in sales in pesos at its subsidiary in Argentina in the third quarter, but translated into Brazilian reais, they only grew by 0.6 percent to the equivalent of R$177.2 million (€56.0m-$70.0m). Margins improved considerably, reaching 14.2 percent of sales at Ebitda level.
In Brazil, sales increased by 4.2 percent overall to R$639.7 million (€198.2m-$248.6m) in the quarter, marking a major improvement from the second quarter, but the gross margin was down by 6.8 percentage points to 44.8 percent year-on-year, and the Ebitda margin was off by 2.5 points to 15.8 percent.
Sales of sandals increased by 15.2 percent in volume to 56.1 million pairs in Brazil during the latest quarter, resulting in a gain of market share for Havaianas in its domestic market. In contrast, sales of sports shoes were down by 3.0 percent, but they began to recover in mid-August (more on this in Sporting Goods Intelligence Europe).
With sales 10 percent higher than a year ago in October, the management continues to expect growth of between 5 and 7 percent in Brazil for the full year.
Globally, the company's consolidated revenues rose by 4.5 percent to R$903.8 million (€280.0m-$351.3m) in the quarter, and they were up by 7.7 percent to R$2,651.2 million (€821.1m-$1,030.4m) for the nine months. In terms of constant currencies, they increased by 14.6 percent in the third quarter and by 13.6 percent in the nine months. Total volumes were also up by 14.6 percent to 70,393,000 pairs.
The consolidated gross margin fell by 3.3 percentage points to 37.7 percent of sales, due in part to a 2.7 percent increase in the average cost of rubber. The operating margin before amortization (Ebitda) fell by 0.5 percentage points to 11.6 percent. If exchange rates had remained the same, the Ebitda margin would have reached 14.9 percent.
The group's net income declined by 25.0 percent to R$55.9 million (€17.3m-$21.7m) in the quarter. It fell by 17.7 percent to R$195.3 million (€60.5m-$75.9m) or to 7.4 percent of sales for the first nine months of the year.