The downward spiral continued in the second quarter for Grendene, whose sales tumbled by 85.8 percent to 82.1 million reais (€13.0m-$15.3m), following several quarters of declining sales. The Brazilian group, which owns brands such as Ipanema and Melissa, sold 4.3 million pairs during the period, or 25.8 million fewer than in the year-ago quarter, due to the suspension of production during a major part of the quarter, store closures and the shrinking of demand for the company’s products amid the pandemic.
The group was particularly hit in its domestic market, with a countrywide shutdown in the various sectors of the economy, especially in apparel retailing. Lockdown measures increasingly compromised production and demand all over the world. In response, the company gave employees collective vacations at all units in Brazil, with a reduction of working hours. Social distancing measures caused all retailers to close. April 2020 turned out to be the most critical month, with severe impacts on the Brazilian economy. The first moves to ease the restrictive measures began in May, with the opening of commerce in some regions of the country. Indicators improved slightly in May and June, but still show a high degree of consumer aversion to making purchases.
In Brazil, gross revenues were down by 86.3 percent to R$ 54.9 million (€8.7m-$10.2m), and volume of pairs sold was 86.4 percent lower, reflecting a small increase of 0.7 percent in revenues per pair.
Grendene’s gross revenues from outside Brazil declined by 72.2 percent to R$ 27.2 million (€4.3m-$5.0m). In terms of volume, shipments abroad dropped by 82.1 percent to 0.9 million pairs, although gross revenues per pair went up by 55.4 percent to R$ 28.11 (€4.1-$5.2), as a result of the higher U.S. dollar exchange rate than in the second quarter of 2019. The management said exports were hampered by the cessation of production - preventing shipment of orders already in hand – along with the cancellation or postponement of orders due to temporary store closures in the majority of markets. In addition, there was a high level of inventories at distributors and in stores.
Grendene implemented several cost cutting measures, which led operational expenses to decline by 25.1 percent.
The franchise network of Melissa Clubs closed five locations during the quarter. On June 30, there were 329 Melissa Clubs globally, down from 334 at the end of March.
Despite the fall in overall sales, Grendene’s gross margin rose by 2.8 percentage points to 41.7 percent, due mainly to a reduction in the cost of labor. The Ebitda margin was a negative 63.2 percent, compared with 26.7 percent last year, and the group ended with a net loss of R$ 44.4 million (€7.0m-$8.3m), against net income of R$ 41.5 million.
For the rest of the year, although no guidance was provided, Grendene said it had seen a gradual improvement in the volume of orders since May, suggesting that the worst of this crisis may have now passed.