The management team at Alpargatas, the Brazil-based parent of the Havaianas and Rothy’s brands, offered its take on the results of the 2024 third quarter, with a particular focus on the company’s strategic review and transformation process, which has started to bear fruit for the Havaianas flip-flop brand.
“Since the beginning of our transformation journey in early 2023, we recognized that achieving our goals would require numerous, deliberate steps. We’re particularly drawn to the metaphor of measured steps, each following the next in a calculated, cautious progression toward our objectives,” the company’s management team wrote its summary of third-quarter results.
“We understand that our journey isn’t a 100-meter sprint, nor will it be marked by leaps. Since then, we have focused on aligning our priorities, establishing which steps come first, and simply continuing, trusting in the cumulative power of these steps in the direction we believe in. We know we have the potential to go far, yet we’re fully aware of the importance of diligence and patience to reach our goals,” they continued.
The team said they defined two central pillars to guide their steps forward:
- Focus and competitiveness, with a return to the essence of the company’s business model, prioritizing what is essential, ensuring efficient capital allocation, and strengthening their competitive advantages; and
- Sustainable growth. The company will continue to pursue consistent expansion cycles with clear priorities and profitability.
“We believe this 3Q24 (Q3 2024) reflects this progression, with certain steps taken solidly and others still to come,” the team said. And within the financial health and capital discipline, they have made significant strides.
“This quarter, we crossed a milestone, achieving a net cash position for the first time since early 2022. After a period of company leverage, this achievement solidifies that the steps taken toward financial health were well-founded,” the team noted.
Alpartagas reports in the Brazilian Real (R$) unless otherwise indicated.
Havaianas Summary
Havaianas Brazil
The company reported that it sold 53.6 million Havaianas pairs of shoes in the quarter and 144.1 million pairs in the nine-month year-to-date (YTD) period, representing growth of 13.0 percent and 15.2 percent, respectively, compared to the comparative periods in 2023.
In the 2024 third quarter, as part of its sales strategy, the company said it pulled forward a portion of sales volume initially expected for the fourth quarter. The volume of pairs of shoes sold in Brazil reflects a more stable operating environment, with improvements in delivery accuracy (on time in full indicator (OTIF), which remains consolidated close to 70 percent, along with enhancements in S&OP processes and increased manufacturing and logistical efficiency.
Additionally, execution at points of sale continues to advance, supported by more promoters and closer engagement with customers, ensuring consistent presence and alignment with the needs of each channel. It is also worth noting that the quarterly volume growth is already compared to a more normalized baseline, following a first half focused on de-stocking and adjusting inventory levels across the chain.
In the third quarter, typical for inventory build-up in preparation for Brazil’s seasonal demand, the company saw a divergence between sell-in and sell-out as part of its strategy to pull forward a portion of sales volume intended for the fourth quarter. Although the estimated sell-out for Havaianas Brazil declined by 3.0 percent y/y in Q3, Havaianas registered a market share increase of 130 basis points over the second quarter and 180 basis points for the YTD period.
Net revenue in Brazil grew 15.4 percent compared to the year-ago Q3 period.
“The period’s highlight was profitability, with gross margin reaching 44.2 percent, an expansion of 7.0 percentage points compared to 3Q23 (2023 Q3) and an EBITDA margin of 22.6 percent, matching the best third-quarter levels in the past decade,” management detailed. “This level of profitability underscores the effectiveness of operational refinements and the brand’s resilience in responding swiftly to implemented course corrections.”
The team wrote that the quarter’s results also reflect improved OTIF, consolidated around 70 percent, enhanced S&OP processes and increased efficiency in manufacturing and logistics. Point of sale execution has reportedly strengthened, with broader promoter coverage, bringing the company closer to customers and ensuring a consistent, channel-specific presence.
“Havaianas Brazil operations serve as a fundamental lever in our journey, and it was no coincidence that we identified this as an early focus. The steps we’ve taken—reducing channel inventory, regaining volume growth, improving operations, increasing market share, strengthening the brand, and achieving record margins—reinforce our confidence in capturing further value from this operation,” the team said.
Havaianas International
In the third quarter, 4.6 million pairs of Havaianas were sold in the International market, marking 13.5 percent year-over-year growth and the first quarter of volume growth since the fourth quarter of 2022, driven by growth in EMEA and the United States. The 2024 YTD result saw a decline of 1.8 percent compared to the Q3 period last year.
“Our International results reflect the nature of a longer commercial cycle marked by strong seasonality and the complexity of necessary adjustments. International performance by region reveals varying results,” the management team noted.
EMEA posted a 31 percent increase in sales volume, reportedly driven by strong performance in MEA countries.
In the EMEA, while a late summer affected restocking and incremental sales anticipated for 2Q24, 3Q24 volumes reached 2.3 million pairs sold, returning to levels seen in 3Q21, supported by EMEA’s positive performance.
“Efforts to regain profitability and scale in this operation are focused on rebuilding the customer base and expanding Havaianas’ presence across strategic channels,” the management team noted. “Our commercial team in the region has been restructured, incorporating experienced footwear and channel management executives, and we have strengthened our logistics partnership to ensure delivery accuracy, enhancing brand credibility and meeting client expectations.”
The company’s U.S. operation recorded a 35 percent increase in quarterly volume, driven by higher sales in digital and off-price channels.
“In the U.S., we saw a 34.5 percent increase in pairs sold y/y, though still insufficient to absorb the region’s expense base,” the company shared. “The scale challenge, combined with the growing presence of digital channels in that market, continued to pressure profitability alongside increased marketing investments over recent months. We believe recalibrating appropriate investment levels in brand-building is critical to our global strategy, and we see opportunities to better balance these efforts with regional results.”
For Distributor Markets in APAC and LATAM, the standardization process of commercial guidelines resulted in a 6.6 percent decrease in the volume of pairs sold compared to the year-ago Q3 period, reflecting the company’s strategy to prioritize operational profitability.
“In APAC and LATAM, regions operated by distributors, we continue closely monitoring sell-in and sell-out to maintain healthy inventory flow throughout the chain, while prioritizing geographies and setting commercial standards that ensure more sustainable margins. This realignment of prices and new commercial terms in some areas impacted volumes but aligns with our pursuit of operational profitability,” the company said.
The consolidated International gross margin reached 60.3 percent of net sales, an improvement of 8.0 percentage points versus Q3 2023 results, said to be driven partly by structural improvements in Europe’s distribution indicators. “However, we recognize that further steps are required for sustainable growth in International markets to achieve sufficient scale for EBITDA margin recovery at healthy levels. While our international path may be longer than in other areas, we see promising signs that our journey is on track,” the management team said.
Image courtesy Alpargatas
