The 2014 World Cup turned out to be a mixed blessing for Brazil’s largest maker and retailer of athletic and outdoor footwear, Alpartagas. While the rising popularity of its Havaianas flip flops in the United States and Europe lifted its sales abroad, domestic sales declined as employees, retailers and consumers in Brazil turned their attention to the World Cup.
The company reported Americas/Europe/export sales reached R$178.3 million ($81 mm) in the second quarter ended June 30, up 44.5 percent from a year earlier. The company attributed a 22.5 percent increase in dollars sales at Alpartagas USA and a 45.7 percent increase at Alpartagas Europe to sales of its sandals, including a collection of the company’s signature Havaianas flip flops patterned after the flags of the 32 national teams that qualified for the World Cup. Alpartagas sold 11.34 million pairs of sandals through those businesses, up 12.5 percent compared with the second quarter of 2013.
In Europe, the growth was driven by higher sales to key retailers such as Decathlon and Sonae. In the United States, it came from an increase in points of sale with major retailers such as Macy’s, which co-hosted launch parties or the Havaianas World Cup collection at four of its stores during the quarter. Sandal exports to the United Kingdom and Italy were also up sharply. In the U.S., Havaianas boosted digital and magazine advertising and re-opened a pop-up store in New York City during the second quarter.
The growth was partially offset by results in Brazil and Argentina, where deterorating economic conditions were braking growth on the eve of the World Cup. Domestic sales inched up 0.4 percent to R$548.8 million ($248 mm), while sales by Alpartagas Argentina declined 8.7 percent to R$145.1 million ($66 mm). Domestic sales nearly flat lined as celebrations over the World Cup reduced both selling and production days. Higher spending on brand advertising during the event and more-volatile-than-expected exchange rates eroded operating margins further during the quarter.
Brazilian sales of Sports Footwear – Mizuno Topper, Rainha and Timberland declined 7.8 million to 2.68 million pairs during the quarter.
Alpartagas attributed the decline to retailers and customers shifting their purchases to soccer products – mainly balls, apparel and accessories – rather than running and casual footwear. Consequently, both unit and dollars sales of Mizuno, Rainha and Timberland footwear declined. The soccer brand Topper, meanwhile, posted a 12.7 percent increase in unit sales of balls and apparel, driving respective revenue increases of 39.0 percent and 10.9 percent for these products.
Unit sales of all Apparel & Accessories grew 1.5 percent to 1.38 million pieces in the second quarter and 7.0 percent to 2.42 million pieces in the first half.
Total unit sales of Sporting Goods – footwear, apparel, accessories declined 7.2 percent to 48.2 million units due to lower sales of Sandals and Sporting Footwear, but was down just 3.5 percent during the first half.
At Alpartagas Retail operations, Timberland sales declined 2.7 percent from a year earlier due mainly to the preference for soccer goods and reduced retail traffic during the World Cup. However, same-store sales grew by 14.3 percent thanks to a shift to higher-priced collections, improved product mix and a review of the franchise management model.
Alpartagas reported consolidated gross margin declined 180 basis points (bps) to 40.6 percent as a 15,550 bps decline in gross margin in Brazil and a 170 bps decline in Argentina offset a 330 bps increase elsewhere. The same effect caused consolidated EBITDA to decline 730 bps to 8.4 percent and net income to decline 67.7 percent to R$22.8 million ($10 mm)
In the back half of the year, Alpartagas anticipates GDP and consumer spending will slow in Brazil but that it will grow sales of its sandals by 5.0 to 7.0 percent for the full year by taking market share. 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, the company expects to sustain growth of its sandal sales at first half rates due to higher Havaianas brand awareness and greater retail distribution. In Brazil, sports footwear sales volume should increase by up to 5.0 percent for the full year. In Argentina, where the company is restructuring its operations to cut costs, the forecast is for 6 to 8 percent sales growth and improving earnings. The company said it expects consolidated 2014 net sales to grow between 10 and 12 percent and consolidated EBITDA margins flat with 2013.