Alpartagas reported its North American, European and Argentine businesses offset expected second quarter declines in its home market of Brazil, where consumers diverted spending away from Mizuno running shoes and Timberland footwear and toward apparel and other World Cup merchandise.


Alpartagas reported net revenues from its international operations increased 14.6 percent, while gross margin grew 7.2 percentage points and EBITDA increased by 83.9 percent. At 19.1 percent, EBITDA margin was up 7.2 percentage points.


Domestic sales, however, were flat as celebrations over the World Cup reduced both selling and product days. Margins declined due to higher spending on brand advertising around the World Cup. Alpartagas, which is Brazil’s largest domestic maker and seller of athletic and outdoor footwear, reported exchange rates were also more volatile than expected.


Brazilian results


Domestic sales of Mizuno,Topper, Rainha and Timberland sports footwear reached 2.675 million pairs, down 7.8 percent from the second quarter of 2013. Sports footwear volume for the first half totaled 4.785 million pairs, down 4.7 percent from the same period a year ago.

Sports footwear sales declined in the quarter because clients and customers purchases were focused on soccer products, mainly balls, apparel and accessories, rather than running and casual footwear. Consequently, Mizuno, Rainha and Timberland experienced a retraction in volumes and revenues, while Topper posted a 12.7 percent increase in sales of balls and apparel, driving respective revenue increases of 39.0 percent and 10.9 percent for these products.



In apparel and accessories, unit sales grew 1.5 percent to 1.38 million pieces in the second quarter and grew 7.0 percent to 2.42 million pieces in the first half.  Total volume of sporting goods (sports footwear, apparel, accessories and Sete Léguas boots) was 4.495 million units in the quarter and 7.997 million in the first six months.

 

At Alpartagas Retail operations, Timberland sales declined 2.7 percent from a year earlier due mainly to the preference for soccer goods and reduced consumer traffic in stores during the World Cup. However, revenue on the same store basis grew by 14.3 percent, as a result of prices increases in collection changeovers, improved product mix and a review of the franchise management model.

 

International results
Sales growth at Alpartagas USA and Alpargatas Europe was driven by sales of the company’s flagship Havaianas flip flops. Exports of the sandals, which included a collection patterned after the flags colors of World Cup teams, increased by 12.5 percent over the second quarter of 2013. The growth was driven by: (i) higher sales to important clients like Decathlon and Sonae, in Europe; (ii) an increase in points of sale in major clients like Macy’s, in the United States; (iii) a significant increase in volumes in the United Kingdom and Italy; (iv) retail expansion, with the opening of stores in the United States and Europe; and (v) communication and partnerships with renowned brands such as Mara Hoffman and Valentino, in Europe. In the six-month period, international sales of sandals and accessories totaled 21.385 million units, down 1.9 percent compared with the first half of 2013, due principally to a retraction in consumption in some South American countries (Bolívia, Paraguay and Colombia, for example), leading to a drop in exports.

 

Outlook

Alpartagas said it anticipates slower GDP growth and consumer spending in Brazil in the back half of the year. It projects its sales of sandals in Brazil will increased 5.0 percent to 7.0 percent for 2014, which will generate an increase in market share because the market is projected to grow at a lower rate. For example, July 2014 sandals sales volume are already 25.0 percent higher than the same period last year, indicating that the second half of the year will be very strong, enabling the company to achieve its targets.

 

Overseas, in addition to maintaining the robust performance of the international sandals operations reached in the first half of the year, Alpartagas expects volume to increase as a result of higher Havaianas brand awareness and greater retail distribution.  In Brazil, sports footwear sales volume should increase by up to 5.0 percent in the year while in Argentina, the company is projecting a sales volume 6.0 percent to 8.0 percent higher than in 2013. With revenue growth and strong cost and expenditure control, the outlook for Alpartagas Argentina is ongoing improvement in results.

 

Achievement of these projections should result in an increase in consolidated net revenues of between 10.0 percent to 12.0 percent in 2014, maintaining consolidated EBITDA margin at the same level as 2013.