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Good morning. Welcome to the conference call of Grendene S.A. to present the results of the second quarter of 2021. [Operator Instructions] This conference call is being recorded. It will be made available in the website, http://ri.grendene.com.br.
Today, we have with us the key executives of Grendene, who will also be available for the Q&A session: Rudimar Dall'Onder, CEO; Gelson Luis Rostirolla, VP; Alceu Albuquerque, RI Officer as well as the main managers of the company. The press release of the second quarter of 2021 is available in the website, ri.grendene.com.br, provided both in Portuguese and in English.
Before proceeding, I would like to mention that forward-looking statements made during this conference call, based on beliefs and assumptions and operating and financial information currently available to the company management, are just expectations of the company's future. These expectations depend highly on general economic performance of the country, the industry and international markets.
I would like now to hand it over to Mr. Alceu Albuquerque, RI Officer. Please, Mr. Albuquerque, you may move on.
Good morning. Welcome to our Q2 2021 Earnings Announcement Audio Conference Call. I hope you are all well and healthy.
First of all, I would like to let you know that all the information regarding the second quarter presented yesterday after the market closed on our Investor Relations website. We have also posted an additional file called audio conference call presentation so that you can easily follow the slides.
Before we get into the performance discussion, I would like to draw your attention to the dividend distribution. On Slide 3, we show the management's proposal regarding distribution of dividends, BRL 33.7 million ad referendum of the Annual General Meeting that approves the accounts for 2021: BRL 16.7 million of intermediate dividends related to the approved balance up to June 30, 2021, and BRL 17 million resulting from the conversion for acquisition of shares.
As shown in Slide 4, dividends will be paid as of August 18, 2021, to holders of common shares on August 5, which would be the cutoff date. Shares will be then traded ex dividend as of August 6, 2021, on B3.
Well, now getting to the performance for the second quarter of 2021. Second quarter '21 results were impacted by the second wave of COVID, which reached Brazil and got even worse during March and April of this year. As Grendene's system relies on received or placed orders, those orders which were received in March and April were delivered and invoiced in April and May, respectively.
In other words, March and April, when we were receiving orders for invoicing in April and May, respectively, meant that over -- more than 65% of traditional retail stores were closed in Brazil, which is the channel that amounts to about 85% of sales in our industry. Thus, the volume of orders received in March and April was impaired due to the high uncertainty level concerning the duration of the second wave of the pandemic and exactly when restrictive measures and reopening of the stores would really come to an end.
As of May, with the reopening of stores and the consequent reduction in level of uncertainty, it was possible to observe a very positive recovery in the volume of orders for delivery in June. Sales in June, for example, indicated demand picking up, reaching 81.5% higher than what we had observed in May.
Before we get into the second quarter numbers, I would just like to inform you that, for the purpose of analyzing the performance of the second quarter, our comparisons will be made in relation to the second quarter '19, given the weak comparison base of the second quarter '20 because our production was interrupted during almost the entire second quarter last year.
On Slide 5, we have the highlights of the second quarter. And as you can see, the volume of pairs shipped dropped 21.9% over the second quarter '19, totaling 23.5 million pairs shipped. Gross revenue reached BRL 437.7 million, a retraction of 11.9% over the second quarter '19, showing the increase in gross revenue pairs of 12.7% compared to the same period in 2019.
In the half year, understanding we have gross revenue, which grew 6.9% compared to the first half '19, totaling BRL 1.1 billion. While the volume of pairs shipped remained stable at 59 million pairs. Gross revenue per pair went up to 6.4% compared to the first half '19.
Recurring EBIT fell 69.2% in the second quarter '21, totaling BRL 6.6 million. While recurring net income totaled BRL 39.4 million, 22.9% decrease compared to the second quarter '19.
In the half year scenario, recurring EBIT increased 64.6% compared to the first half '19, totaling BRL 113.5 million. In the first half of the year, recurring net income reached 22.7% over the first half '19, amounting to BRL 171.2 million.
On Slide 6, we can see more detailed breakdown of the figures I have just presented. In the domestic market, as you can see, gross revenue reached BRL 334 million, a decrease of 16.4% over the second quarter '19. The mix of commercialized lines and shipped products and price increase over the second quarter '19 have mitigated the negative impact of the decrease of number of pairs in the domestic market.
And 2 segments had a differentiated performance in the second quarter. First, bootwear. With brand Pega Forte, it achieved the best second quarter in the segment's history, consolidating itself as the main Brazilian representative of this type of utility footwear and also of PPE.
The second segment was a positive highlight was the men's segment, composed of Rider, Cartago and Mormaii brands. Rider pulled the performance of the segment, reaching the best second quarter of its history, shipping not only a higher volume of pairs than in previous years before the pandemic, but also products with higher added value, such as footwear -- footbed sandals R Next, signed -- a collab signed by designer Pedro Andrade, which sold the entire stock of the product priced at BRL 349 sold out in 3 days only.
Now concerning the channels. Self-service showed a very positive performance, and it has been since the beginning of the pandemic. While the volume of pairs commercialized in the channel grew 19.1%, gross revenue advanced 51.1%, reflecting the increase in gross revenue/pair of 26.9%, a direct result of our strategy of inserting higher value-added products in the channel.
The store -- department store channel, even though presented stable gross revenue in the second quarter '21 over second quarter '19, we considered the channel's performance to be positive, given that most of the stores that are part of this channel are located mostly in shopping malls, which remain closed for most of the quarter and still are subject to restrictions of operation.
In other words, maintaining sales in the channel in face of this adverse scenario is a result that should be celebrated because we have gained space from other brands in this channel.
The e-commerce presented and have maintained to show exponential growth, which was observed since the internalization of our online stores. And before I talk about e-commerce, I would like to emphasize that our comparison will be made over the performance of the second quarter last year as it is a best basis for comparison.
Grendene's online sales, excluding Melissa, grew 680% in the second quarter '21 compared to the same period in 2020. While Rider and Ipanema, for example, reached growth of 933% and 857%, respectively, compared to the second quarter '20.
Having concluded the migration stage of the online stores and it was finalized in February this year, our priority now is the integration with the main marketplace in the market as of July. And we started integration with Magalu. And as part of our road map, we also expect to integrate with Dafiti and Netshoes.
The other priority of the digital commerce team is the rollout of omni project to all Clube Melissa.
[Audio Gap]
represents just 2% of our total sales. That's a small share in comparison to 19% penetration of outwear and shoe market in Brazil and 35% in countries such as United States and China. In a nutshell, we still can grow a lot in the e-commerce channel.
Now talking about the international foreign markets. The gross revenue grew 6.4% in the quarter, reaching BRL 104 million, mainly due to the exchange devaluation which contributed to the growth in gross revenue of BRL 27 million. On the other hand, the volume of pairs shipped and the mix of lines and products shipped had a negative impact on gross revenue.
In the semester perspective, gross revenue from exports grew 26% in comparison with the first half of 2019. Net revenue fell 10.5%, in the line with the drop in the gross revenue. Gross profit decreased 18.4% in the second quarter '21. And gross margin fell from 38.9% in the first quarter '19 to 35.5% in the second quarter '21.
The efficiency gain in manpower, that we can see on Slide 6, was not enough to offset the effect of the drop in volume and the increase in raw material prices on the gross margin, which fell 3.4 percentages. And once we have a high volume of products, we are able to decrease our cost values and to capture portfolio, which was not possible due to the number of shipped pairs.
As of June this year, we were able to perceive the first signs of a balance between the offer and our resin, which is our first main raw material. Now that we have resin available in the international market due to the main PVC providers in the U.S., linked to the demand in India, is being responsible for the price of resin in the past few weeks. We hope that this price drop will be kept for a couple of months until -- despite, we'll not be able to forecast that.
We have 12.3% operational expenditures in face of the past quarter due to the expenditures with advertisement. Our alternative investment portfolio to the traditional bank investments are federal public bonds. We closed our half with [ BRL 863 million ], where we have part of them allocated in debentures; BRL 251 million allocated in real estate projects; and another BRL 357 million in variable portfolios.
Now talking about Melissa. The brand showed an inferior performance once compared to other brands during that semester, especially due to the brand commercial model, which firmly depends on Melissa's brands models, which are mainly located at shopping center malls. Gross revenue as well as the number of shipped pairs has a drop of 35% in comparison to the third quarter 2019. Domestic market dropped 40%, whereas the number of shipped pairs had shrunk 30% in comparison to the third quarter 2019.
As of sellout, the gross revenue for our franchise network dropped 26.4% in relation to the third quarter 2019, considering some restrictive measures that we had considered priorly as well as it happened to some other brands. As of June, we can see a recovery in the revenue of Melissa. In June, as a matter of fact, we had the highest sellout of for Melissa, which allowed the reopen of our physical market, especially the shopping centers.
We have a piece of novelty for Melissa in the domestic market, which is the first department store partnership of those brands. Now we had established a partnership with the Renner department store to commercialize our Sun brand in over 30 stores.
I also would like to highlight the collab between '21, which is a very successful collab and engagement in the social media. And that is supposed the top 10 in the media channel since its launching. And that is a worldwide phenomenon, and it became a trend-top in the Twitter since its launch.
Still talking about the domestic market. Melissa is speeding up that project to gain the omnichannel capabilities to ensure that consumers can get products wherever and whenever they want. We have a number of physical stores, 286 physical stores shipped in the showroom modality and 168 in the ship from store modality. In relation to the channels, the self-services showed a very positive performance. We see a retraction of 39% and 18% of the revenue in U.S. dollars and BRL, respectively, once we compare that to the third quarter 2019.
In the international market of Melissa, we are in the international markets. Now we have embarked in the Disney Springs store in Orlando last March. And we are considering opening another store in San Diego and one in Miami as of October. With that, we are going to have 5 owned stores in the United States just for Melissa. And we expect that by the end of the year, we will be able to open 2 on Melissa Clubs, one in China and another one in Shanghai.
Now let me talk a little bit about our qualitative development. On Slide 21, I would like to point out some novelties as digital commerce within Grendene. We had developed those 3 pillars that allow digital development culture. And we have -- in culture, we have a group of digital facilitators which count on over 200 people that foster and disseminate digital communication within Grendene.
As to the business pillar. We are -- we have ambition to come into a journey of 2 years in 1. Once we became responsible to manage our Melissa channel, in just a few months, what we would expect to do within 2 years, we did just within 10 months. We were even awarded by [ Oracle ] due to our excellent performance as we were able to migrate our online stores with excellence.
As to the business pillar and as we are exponentially growing, since we migrated to our proprietary Grendene's platform. As to technology pillar, which is our third pillar, we had released the Grendene Aproxima program, which has been leader by Bergamotta Group for the start-up ecosystem. The program seeks to find, develop and test innovative solutions related to the following guidelines: digital first, customer people-centric, globalization and sustainability.
On Slides 22 and 23, we highlight some news regarding the sustainability topic. Now on the second quarter, we disclosed for the second consecutive year our 2020 Sustainability Report in accordance with the guidelines of the Global Reporting Initiative.
We launched 2 new products with a sustainable focus. Rider brand developed an exclusive collab, which was named R Next, and it was signed by the designer Pedro Andrade. The entire collection was based on the reduction of materials, given that the environmental impact was one of the main concerns in the development of the product.
We also launched the Ipanema Recria recreation composed of sandals at an affordable cost to the consumer and with much less environmental impact. The whole collection is twice as sustainable as 60% of its composition comes from recycled material compared to 30% of other collections.
We also strength our company's circular economy program. Now the collection stations at the Melissa Clubs, in addition to receiving Melissa and Rider products, we will also receive Ipanema footwear for recycling.
Throughout the first half of 2021, we produced and donated about 2.5 million protective items for health and safety professionals. Since at the beginning of the pandemic, over 7 million protection items have already been donated, reinforcing our role as a corporate citizen.
Another highlight was the announcement of a memoranda, which has been signed for understanding with 3G Radar to form a joint venture with the objective of distributing and commercializing our products in certain international markets. The rationale the transaction is to unite the company's manufacturing capabilities with the 3G's track record of attracting talent, especially in retail, to tap into the USD 360 billion international footwear market in 2019. And we expect it to reach, by 2028, USD 537 billion, according to a report published by Research Dive. We are fully convinced that, together with 3G and with the team we are putting together, we will have great export results in the coming years.
And recently, I have received some investors calls seeking for more information on the impact of the tax reform for Grendene, mainly in relation to dividend taxation. What we can say right now is that we are closely monitoring developments in Brazil, our federal capital, and studying alternatives to distribute part of the cash as we are doing now in the second quarter, in which we are distributing BRL 17 million in dividends for -- from the reversal of the reverse for share acquisition.
And finally, I would like to say that we are quite optimistic about the second half of the year, although aware of the risks that the new variants of the coronavirus pose to the pace of global recovery. The progress of vaccination in the country; the recently launched spring/summer collection, very well received by our customers; the acceleration of the new trends, the casual trend; and the search for comfort; the commitment our team; and the strength of our brands make us very confident about the company's performance in the second half of the year.
We have all already seen the impact that the vaccination had on the reopening of the main world economies. In Brazil, the recovery in June was a strong indicator of what happens once the measures, the restrictions, circulation and trade disappear. Consumers, once they come back, they come back full of appetite.
Well, that is what I had to share with you at the moment. Thank you. And now let's open for questions.
[Operator Instructions] The first question comes from [ Marcos Antonio de Carvalho ], an individual investor.
[ Mr. Marcos ], please, you can start with your question now.
The next question comes from Mike Nicholas, Garin Investments.
On our side, there are 2 points to be brought to your attention. First, there was an increase on the average revenue per pair resulting from the readjustment and improvement in mix, as you pointed out, despite the reduction of volume. Could you please give us a general overview of what we can expect in terms of average ticket for the second half? Once there would be a pickup of activity, would you expect to change the mix, bring the average ticket down?
And secondly, you've announced in this partnership with Renner, especially your line, Sun. I would also like to hear whether other products are going to be part of this partnership and whether this kind of agreement can also be made with other retailers. Or whether it was just one single opportunity you had with Renner?
Thank you, Mike, for your question. Concerning the mix, let me tell you what we believe. The gross revenue/pair should be maintained. We don't expect to have any significant changes to it in upcoming quarters. The increase, as you pointed out, shows the price adjustments that we gave and discounts we gave in October last year and in February of this year, and also due to the improvement of product mix and the traded lines. So in a nutshell, the gross revenue/pair should be maintained. We do not expect a significant change due to mix.
Now in terms of our partnership with Renner, the partnership was made just to sell the line -- product line Sun, as you pointed out, which was onetime partnership with the department store, Renner. We don't anticipate any other similar partnerships right now.
It had been over 20 years that we didn't have a similar partnership such as the one we had just made with Renner. So probably, it was just one independent initiative and just with Melissa Sun.
Our next question is from Wagner Salaverry, Quantitas.
I would like to better understand, if you could elaborate, this idea of the partnership. You had mentioned that Melissa is opening a number of shops, including the United States. I'd like to hear if all these new operations, are they part of this partnership? Are they embedded into the partnership?
And I also would like to know, what is your idea behind the joint venture? Why have you decided to go for a joint venture instead of an internal operation? And I'd also like to hear a little bit more about the governance of this operation.
And as I read in the release, there might be some sanctions for that operation. As you have not disclosed more information about that, I would like to hear more, if you could elaborate.
Thank you, Wagner, for your question. What I forgot to mention about the average price, which tends to go up a bit due to the gain of representation of Melissa, which had a lower performance in this quarter. But now that Melissa is regaining those high scores, that we'll be able to increase the half average price.
Wagner, as to how to commercialize that, we cannot disclose a lot as you would like to hear because we have not signed all the final documents. But the rationale behind this operation was to keep our manufacturing capacity in the production of shoes with the ability to attract executives and businesspeople that have expertise in the footwear market, especially in the international markets, where we hope to attract some dynamic resources.
Now answering to your question. We decided to do that with 3G, especially because we have an ability to attract people with a very strong success track record and that's why we decided for the joint venture.
As to governance. That we had mentioned, we cannot disclose much right now. But the idea is to be a controlled joint venture. We want to have the majority in the Board, but we have some affirmative votes within some strategic actions to allow them to be implemented. But for that matter, we have to get our affirmative vote. We hope to disclose that partnership within the next 30 days as we are advancing the negotiation. But right now, we are just concluding the documentation, and we are writing down everything that has been agreed so far. So we hope that in the next 30 days, we will be able to disclose into details that partnership and the joint venture.
But we can tell you in advance that we are very happy with this partnership because we believe that may take that to another level because the international market has a much higher level than the domestic one. So we are very enthusiastic about this opportunity and partnership.
Just another question. So just to make very clear, in the past few years, the company has BRL 2 billion of cash right now and also investing in variable revenue, especially due to the decrease of the Selic rate. And my question is, right away, this joint venture with a main focus within the international markets and to find executive and new talent for this new market, can that expect to get Grendene's market allocations?
Would you expect that it's quite natural to find new opportunities and, therefore, that cash may be allocated as part of new opportunities that you may find as a consequence of the joint venture?
Probably yes.
Okay then. Being very straightforward, my answer is yes.
At the time that you disclosed that information, are we going to have a specific call for that information?
Exactly. We are putting together a specific special communication agenda, where we intend to make very clear our objectives and to give you more details about this new partnership.
We now close the Q&A session. I would like now to hand it over to Alceu Albuquerque for his closing remarks.
Once again, thank you all very much for being here with us. We wish you a great day. Thank you.
The conference call of Grendene is closed now. Thank you all very much for your participation. Have a great day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]