After production restrictions in the spring and early summer due to the pandemic, Vulcabras resumed full operations at its factories in July, capitalizing on a robust order backlog. It managed to lift overall sales in the third quarter, but sales of women’s shoes were lower as the company prepares to exit the business, except for a small activity in South America, to focus on sports with its Olympikus brand and the distribution of Under Armour in Brazil.
The company claims that its business model, which relies for the most part on in-house shoe production at two modern factories in the Brazilian Northeast, is giving it a unique agility in responding to the Covid-19 crisis, positioning it as an attractive “smart choice” for domestic retailers, helping them with their re-stocking process more than other vendors that rely on imported products.
As a result, the group’s net revenues for the third quarter rose by 6.5 percent to 382.9 million Brazilian reais (€61.1m-$72.2m). The performance of the company’s online brand stores maintained the same trend of expansion recorded over the prior quarters, achieving a growth of 234.7 percent over the same period of 2019 and 32.3 percent as compared to the second quarter. In July, Vulcabras presented its new collections for the second half of the year in an innovative, fully digital format, which proved popular.
In Brazil, the group’s sales advanced by 7.3 percent in the quarter, led by the reopening of physical stores, although with restrictions on access and opening hours. Abroad, revenues decreased by 3.1 percent.
Overall sales of athletic shoes progressed by 4.0 percent to R$281.1 million (€44.7m-$53.0m) in the third quarter, with a gain in volume of 1.4 percent. However, the company’s two brands of women’s shoes, Azaleia and Dijean, recorded a drop of 12.8 percent to R$46.4 million (€7.3m-$8.6m), with sales volumes down by 13.3 percent.
Despite the rapid resumption of production levels and the recovery of the order backlog, the gross margin was still negatively impacted by the high cost of inventories carried over from the second quarter, higher costs of goods produced due to increased absenteeism and higher raw material prices. The margin inched down by 0.5 percentage points to 34.2 percent. The Ebitda margin declined by 0.7 percentage points to 17.3 percent of revenues. The bottom line showed a net loss of R$3.7 million (€0.6m-$0.7m), against profit of R$0.3 million in the year-ago period.
Vulcabras will drop out of women’s shoes and focus on sports shoes and apparel, after signing a license agreement with Grendene for the Azaleia brand. The three-year agreement, which can be renewed for an additional three years, covers the production and sale of women’s shoes in Brazil and worldwide, except in Peru, Chile and Colombia, where the Azaleia brand has a network of more than 70 stores, according to Vulcabras’ website. Vulcabras will continue to sell women’s shoes only in the South American countries excluded from the contract with Grendene.
Vulcabras has also bought Alpargatas’ rights to manufacture and market the Mizuno brand for 32.5 million reais (€5.1m-$6.1m). The license covers Brazil and Argentina. In addition, it is scheduled to discontinue Dijean, which could be sold if a buyer is found.