The last quarter was a difficult one for Grendene, with revenues and profits that did not match expectations. The Brazilian group – which owns brands such as Ipanema and Melissa – sold 49 million pairs during the period, or 6.6 million fewer than in the year-earlier quarter.
Gross revenues from outside Brazil declined by 19.7 percent to 191.2 million reais (€40.5m-$44.1m). In terms of volume, shipments abroad dropped by 22.6 percent to 10.9 million pairs, although gross revenues per pair went up by 3.8 percent to R$ 17.57 (€3.7-$4.0), partly because of a favorable currency exchange rate. In Brazil, Grendene’s gross revenues declined by 6.5 percent to R$ 603.8 million (€128.3m- $139.1m), while sales volumes dropped by 8.2 percent to 38.1 million pairs.
Overall, Grendene’s net revenues in the fourth quarter were down by 10.3 percent to R$ 665.7 million (€141.5m- $153.4m). There was a non-recurring adjustment, which amounted to a reduction of R$ 5.1 million (€1.1m-$1.2m) in the quarter, referring to a credit obtained under a Brazilian exports tax incentive system, Proapi.
The group’s gross margin improved by 0.2 percentage points to 50.7 percent, and the Ebitda margin progressed by 0.5 percentage points to 26.7 percent, while the group’s net income dropped by 16.4 percent to R$ 210.1 million (€44.5m-$48.4m).
For the full year 2019, Grendene’s net revenues were down by 11.2 percent from the previous year to R$ 2,071.0 million (€438.9m-$476.0m). Gross revenues in Brazil fell by 8.7 percent to R$ 1,979.5 million (€419.6m-$455.0m). Total pairs sold dipped by 9.4 percent.
According to the Brazilian Institute of Geography and Statistics, sales in the sector of fabric, wearing apparel and footwear remained stable year-on-year, which led Grendene’s management to admit that it lost market share in some of the segments in which it operates. As a result, it has made some adjustments to the portfolio, increasing the number of new models, and adapted its sales policy. This comes after the company already implemented several cost-cutting measures during the year, including staff reductions.
Meanwhile, on the export front, the group’s gross revenues tumbled by 18.8 percent to R$ 533.8 million (€113.2m- $122.7m) for the volume with a drop of 23.8 percent, weighed down by South America (Argentina, Paraguay and Bolivia), where volumes were 40 percent lower due to sluggish demand and bureaucratic bottlenecks in those countries.
Still, Grendene benefited from a currency exchange gain of R$ 23.8 million (€5.0m-$5.5m) for the year. The company, which was performing better abroad previously, is taking fresh steps to grow the export business, such as efforts to expand the network of distributors, replacing those that have shown weak performance.
It is also looking to boost the development of the Melissa brand abroad, notably through the opening of directly owned stores. In the U.S., there will be five new stores in 2020, to support a larger project of franchising for the brand. At the end of 2019, there were 144 company-owned Melissa stores operating outside Brazil.
The group’s profitability remains high, but it has deteriorated. Grendene’s annual gross margin declined last year by 1.8 percentage points to 45.6 percent, while the Ebitda margin lost 1.6 percentage points, down to 20.8 percent. Net earnings were down by 15.5 percent to R$ 495.0 million (€104.9m-$113.8m).
In the third quarter, the company recognized a non-recurring net gain of R$ 38 million (€8.0m-$8.7m) for legal action brought by the company for excess tax paid. Continuing the procedural stages, the company filed an application for prior qualification with the federal tax authority for receipt of an updated amount of R$ 496 million (€105.1m-$114.3m).