The Brazilian footwear company, which owns the Azaleia and Dijiean brands of women's shoes and has a large athletic shoe department, reported major sales declines and a net loss for the third quarter, ended last Sept. 30, blaming in part “aggressive” imports of foreign-made footwear in the premium and low-price segments.
Vulcabras also attributes the temporary weakness of its results to the reorganization of its production apparatus in Brazil and to unexpected problems in the implementation of its IT management system, which delayed deliveries to customers in July and August. It says the results of its comprehensive reorganization program will only be seen in the next fiscal year. The company indicated that it was have to realign prices to reduce excess inventories.
Excluding extraordinary items, the company booked a net loss of 50.0 million reais (€20.6m-$26.9m) for the quarter, compared with a profit of R$31.7 million a year ago. The gross margin fell to 22.8 percent from 34.8 percent, and the company moved into a loss also at the operating level, posting negative margins of 3.9 percent before amortization (Ebitda) and 6.3 percent before interest (Ebit).
The consolidated operating revenues of the group fell by 31.8 percent to R$463.9 million (€191.2m-$249.5m) in the quarter. In particular, the total volume of shoes sold declined by 25.2 percent and their average price was cut by 12 percent in reaction to the competition and to a slowdown in consumption.
While retail sales of footwear and apparel grew by only 0.6 percent in Brazil during the 12 months ended last September, the growth prospects for the market have attracted a variety of international players, particularly in the athletic shoe segment, said Vulcabras. The company, which was in the forefront of the battle for anti-dumping duties imposed in March 2010 on nearly all kinds of shoes imported from China, noted that total shoe imports into Brazil grew by 43.5 percent in dollars during the 12 months through September, partly because of the 7.7 percent increase in the value of the Brazilian real over the same period.
While Vulcabras' sales of athletic footwear declined by 32.3 percent in the third quarter, down to R$342.3 million (€141.1m-$184.1m), its sales of women's shoes, sandals and boots fell by an even higher rate of 41.5 percent to R$77.3 million (€31.9m-$41.6m).
Vulcabras shipped 27.7 percent fewer pairs of athletic shoes and reduced their average prices by 17.6 percent in the quarter. The company reduced its prices on other types of shoes by 11.4 percent to compensate customers for late deliveries of merchandise, partly due to the shutdown of a factory and the late implementation of its new IT system. Its total deliveries of women's shoes, sandals and boots fell by 36.6 percent to 880,000 pairs in the quarter.
Vulcabras is adding more sophisticated models of Azaleia and Dijean shoes, however, to improve the consumers' perception of their value and to return to high price levels.
Contrasting with relatively poor results in its domestic market, Vulcabras reported a 7.6 percent increase in sales abroad, which represented 22.6 percent of revenues in the latest quarter. In terms of U.S. dollars, they actually grew by 15.0 percent to $63.9 million.
For the first nine months of the year, the group reported a net loss of R$153.1 million (€63.1m-$82.3m), compared with income of R$94.2 million a year ago. Gross operating revenues were down by 18.9 percent to R$1,383.7 million (€570.4m-$744.1m) and the gross margin fell by 13.6 percentage points to 17.9 percent (more in SGI Europe).