Netshoes (Cayman) Ltd., Latin America’s leading online retailer of sporting and lifestyle goods, reported year-over-year net sales growth of 14.9 percent, or 17.3 percent on an FX-neutral basis, despite a tough comp against 2016. The results The results are stated in Brazilian Reais (R$).

Marcio Kumruian, founder and CEO of Netshoes, commented: “We achieved strong topline growth and extended our leading market share in the second quarter, while making further headway on strategic initiatives to enhance our profitability. GMV and net sales increased 28.7 percent and 17.3 percent respectively on an FX-neutral basis year over year, as we further expanded our customer base and market share. Year over year, the number of registered members grew 20.8 percent and our active customer base expanded 17.9 percent. Importantly, we continue to be at the forefront of the mobile opportunity with 42.9 percent of orders placed from mobile devices, compared to 28.7 percent in the year-ago period, resulting in greater customer loyalty and purchase frequency.”

The increased momentum underscores management’s actions to introduce new products in profitable verticals, notably the Zattini brand, Marketplace in Brazil and private label brands. In the quarter, Netshoes was chosen by Asics and Olympikus to launch their new webstores and run their online strategy. It also bolstered its Marketplace and private label offerings with the addition of seasoned executives, bringing solid industry experience to these key initiatives.

Financial Highlights

Net sales were R$461.3 million in the second quarter of 2017, a 14.9 percent increase year over year (up 17.3 percent on an FX neutral basis). The result was negatively impacted by an increase of R$12.5 million of returns recorded in the B2B business. In the first half of 2017, net sales amounted to R$857.6 million, representing a 14.4 percent increase over the year-ago period (+17.7 percent on an FX neutral basis).

The Brazilian operation’s net sales grew 14.9 percent year over year to R$407.5 million, while the International operation posted net sales growth of 14.2 percent on an as-reported basis and 35 percent on an FX neutral basis. In the first half of 2017, net sales in Brazil amounted to R$763 million (up 16 percent year over year) and R$94.5 million in the international operation ( up 3.2 percent year over year and up 29.8 percent year over year on an FX neutral basis).

Gross profit totaled R$152.8 million (33.1 percent gross margin) in the second quarter of 2017, compared to R$142.1 million (35.4 percent gross margin) in the year-ago second quarter and was negatively impacted by strategic price discounting initiatives intended to expand the company’s market share and customer base. In addition, the company registered a negative impact of R$2.1 million as a result of an increase in returns in the B2B business. Gross profit amounted to R$282.6 million in the first half of 2017 (33 percent gross margin) and to R$247.1 million in the first half of 2016 (33 percent gross margin). Excluding a non-recurring R$10.1 million positive effect on cost of sales relative to VAT tax credits recorded in Q1 2017, gross profit for the 2017 first half would have been R$272.5 million, representing a 31.8 percent gross margin.

Adjusted Selling and Marketing Expenses were R$119.8 million (26 percent of net sales) in 2Q-2017, compared to R$103.9 million in Q2 2016 (25.9 percent of net sales). This result equated to a 15.3 percent increase year over year, mainly due to higher marketing investments (Zattini campaigns in Brazil and Hot Sale season in Mexico and Argentina), and represented a 0.1 percentage point increase as a percentage of net sales. In the first half of 2017, Adjusted Selling and Marketing Expenses amounted to R$220.5 million (25.7 percent of net sales), a 1.8 percentage point decrease when compared with R$206.2 million (27.5 percent of net sales) recorded for the first half of 2016.

Adjusted General and Administrative Expenses were R$36.6 million (7.9 percent of net sales) in the second quarter, compared to R$39.7 million (9.9 percent of net sales) in the year-ago quarter. Adjusted General and Administrative Expenses in the first half amounted to R$61 million (7.1 percent of net sales), a 3.7 percentage point decrease compared with R$80.7 million (10.8 percent of net sales) in the year-ago half.

Excluding the R$12.9 million non-recurring positive effect registered in Q1 of 2017 under personnel expenses related to adjustments in the company’s stock option plan1, adjusted General and Administrative expenses for the first half would have been R$73.8 million (8.6 percent of net sales), representing a 2.2 percentage point margin improvement over the first half of 2016.

EBITDA was negative R$8.9 million in Q2, compared to negative R$5.8 million EBITDA in the same quarter a year ago. The EBITDA margin declined 0.5 percentage points to 1.9 percent, as a result of the previously mentioned effects. EBITDA for the second quarter of 2017 included a negative impact of R$2.1 million as a result of an increase in returns in the B2B business. EBITDA for the 2017 first half amounted to negative R$5.8 million ( negative 0.7 percent of net sales), up 88 percent or 5.8 percentage points  when compared to negative R$48.4 million (negative 6.5 percent of net sales) for the same period last year.

Excluding the non-recurring effects recorded in the first quarter of 2017, EBITDA for the first half of the year would have been negative R$28.8 million, with a negative 3.4 percent EBITDA margin, representing a 3.1 percentage point margin improvement over the first half of 2016.

EBITDA for the Brazilian operation was positive R$6 million (1.5 percent EBITDA margin) in the second quarter, compared to positive R$6.3 million (1.8 percent EBITDA margin) in the 2016 second quarter. EBITDA Brazil for the first half of 2017 amounted to positive R$19 million (2.5 percent of net sales), compared to negative R$22.2 million ( negative 3.4 percent of net sales) for the same period last year.

Excluding the non-recurring effects recorded in the 2017 first quarter, EBITDA for the first half of 2017 would have been negative R$4 million, with a negative 0.5 percent EBITDA margin, a 2.9 percentage point margin improvement over the year-ago first half.

EBITDA for the International operations amounted to negative R$11.8 million (negative 21.9 percent EBITDA margin) in the second quarter of 2017, a 0.3 percentage point margin improvement over the second quarter of 2016. EBITDA International for the first half of the year amounted to negative R$20.6 million (negative 21.8 percent of net sales), compared to negative R$21.6 million (negative 23.6 percent of net sales) for the same period last year, representing a 1.8 percentage point margin improvement.

Net income was negative R$35.2 million (negative 7.6 percent net margin) in the second quarter of 2017, compared to negative R$33.6 million in the year-ago quarter (negative 8.4 percent net margin), representing a 0.8 percentage point margin improvement. In Q1 2017, net income was negative R$72.9 million (negative 8.5 percent net margin), a 4.2 percentage point margin improvement when compared with negative R$95.3 million (negative 12.7 percent net margin) recorded in the first half of 2016.

Photo courtesy Netshoes