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Good morning. Welcome to the Conference Call of Grendene S.A. to present the Earnings Release of the Fourth Quarter 2019. We would like to inform you that the conference will be provided in Portuguese with simultaneous translation to English.
[Operator Instructions]
I would like to remind you that the conference is being recorded and will be provided in the website, ri.grendene.com.br.
We have here with us the key executives of Grendene, who are also going to be answering your questions, Rudimar Dall'Onder, CEO; Gelson Rostirolla, VP; and Luiz Moroni, Chief IR Officer; as well as the key managers of the company.
The press release of the Fourth Quarter 2019 and the report from 2019 are available in the website, ri.grendene.com.br, versions in Portuguese and in English.
Before moving on, we would like to make it clear that any statements provided during the conference call about estimates, financial perspective, forecast of the company are simply assumptions based on the expect of the organization in the future of the company. Such expectations depend on market conditions, economic performance of the country, the area and international markets. I would like now to hand it over to Luiz Moroni, who is the Chief IR Officer of the company. Please move on, Mr. Moroni.
Good morning. Thank you very much for being here with us for the audio conference of Grendene to present our earnings release. All information referring to this period that we will address in the conference call were presented yesterday once the market was closed, in our press release and in the report of the top management, which you can find in our website of Investors Relations. We have also posted an additional file, which is the presentation of the audio conference, which will really favor your observation of our presentation and a summary of the figures.
Before going into the discussion of the performance, we'd like to talk about distribution of dividends. According to our current policy, the management has proposed sharing 2019 fiscal year of our dividend, amounting to BRL 129.7 million ad referendum of the General Meeting, which has approved the meeting in -- the accounts of 2019, BRL 110 million at interest on equity and BRL 19.7 million of additional dividends.
Everyone who holds common shares, GRND3, who will be entitled to receive the dividends, who have been registered in the company on April 22, 2020, which is the cut-off date ex dividend as of April 23, 2020, to be paid as of May 6, 2020.
Now referring to the performance of 2019. The profit of Grendene in 2019 was BRL 495 million, liquid -- net margin of 23.9%. The margin compared to other companies, places Grendene as one of the best companies in the footwear industry. It's important to emphasize that in the first half of 2019, Grendene performed below the average. And the reasons have already been presented in previous release of the first quarter and second quarter '19.
In the second half of 2019, we improved our performance, but we still underperformed based on our expectations, which were not enough to offset the current status. On the fourth quarter '19, there was a reduction of 11.9% in volumes, which amounts to 6.6 million pairs fewer than what we had sold in the fourth quarter '18 due to a drop in the domestic market of 8.7% and 18.8% in exports. The reduction in volumes has led to a drop of 10.1% in gross revenue, 15.3% in EBIT and 16.4% in net profit over the fourth '19 -- fourth quarter '19 over fourth quarter '18.
There was 11% decrease in gross revenue, 22.6% in EBIT and 15.5% in net profit over '18. The financial result was 12.1% above the same period last year, BRL 178 million over BRL 158 million in 2018.
Domestically, the decrease in gross revenue was 8.7%, considering the brands and segments we work with, there has been no significant variation. The decrease was between 8% and 10% in men footwear, Rider and Cartago brands; women, Grendene Zaxy; Grendene Kids, Ipanema and Melissa. We have also observed that shop managers are working with reducing inventory coverage. Even though they end up losing sales, but they prefer to have higher markup of sold items, generating lower volumes at initial and additional orders. We have already adjusted our portfolio of products, an increase of new archetype as well as adjustments in our commercial policy, greater financing lines, credit and shared risk.
In terms of exports, there was a decrease of 18.8% in gross revenue and 23.8% in exported volumes. The most marked reduction occurred in South America, Argentina, Paraguay and Bolivia, which represents 40% of the decrease in volumes or into a drop in demand, restrictions and some bureaucratic issues in these countries.
We started a project to expand internationalization of brand Melissa, opening 5 of our own stores in United States. And later expanding that to other countries to support a greater project of brand franchising. We closed 2019 with 144 exclusive stores, Melissa, 164, one-brand stores, Ipanema, Rider or Zaxy, and 441 multi-brand stores with more than one Grendene brand, totaling 749 stores, operating into the external foreign market.
We are also expanding our operations and the network of distributors, replacing some of them that have low performance. We've been operating with idle capacity. And we believe that in 2020, as an expectation of increase in GDP, reduction of unemployment rates, better salary, more affordable and accessible credit and the increase in the confidence level of consumers, we expect to have an increase in semi-durable goods really benefiting from these circumstances, which will mean increase in volume of sales, and as a consequence, we are going to improve all the results we currently have.
In addition to the perspective of improving the economic scenario, we should also do our own homework. Our business model require the interpretation where effective interpretation of fashion trends, development of the expected products that have good cost, over perceived valuation at the right moment so that we can capture volume and/or increase volumes. As a result of all these implemented actions, we've already observed improvements in the first quarter 2020.
These were our comments. Thank you very much. Now we are going to go into the Q&A session.
[Operator Instructions]
Our first question is from [ Sarah Delphine ], [ Dale Capital ].
Could you elaborate a little bit more about the internal market? And why we had such a drop in the volume rates. If there is any reason for such a performance? And what do you expect to get throughout the year that can be positive to the business?
And good news is despite that volume decrease, you were able to keep that gross margin.
I would like to know if there was any price or cost change.
Thank you, Sarah, for your question, and good morning. Domestic market, the reduction. As you all know, it was quite homogeneous for several markets into the segment. We had some increase in the cost of goods sold. And throughout the year, we can see some minor value due to this gap, leading to a lower gross profit.
I don't know if I have answered your question. But as to gross revenue, that was [ some ] adjust that we had mainly in the second half adaptive new volume structure that we had forecasted beforehand.
[Operator Instructions]
Next question is from [ Orleans Martins ], investor.
I would like, if possible, to elaborate a little bit more about the decision not to acknowledge the support and the auditor appraisal. Why that's the decision? Could you explain a little bit more, why you reached such a decision?
Gelson, I am the VP. You probably have asked about PIS and COFINS, ICMS over PIS and COFINS. Because there is some sort of appendix by the auditors. The company has stated ourselves since the last year. And we broadly disclosed since the first half of this year, our position about the topic.
Of course, based on our lawyer's risks. And we reached a very conservative decision, which is a way that we have to work, based on several questions by the Federal Supreme Court, which has to judge a plea from the Federal Public Ministry. And they -- that was supposed to be concluded last year, but not yet, that might happen this year. Therefore, in the third quarter, we had stated a quite conservative amount, considering that if the Federal Supreme Court decides anything different from what has been decided in the first levels according to the Justice, we will rest in peace. Auditors, however, they keep with the same type of reasoning and approach as the one they took last year. And we are very optimistic and positive to be in a more conservative position. With that, we hope that our shareholders and investors and the company administration as a whole to feel safe and solid.
Next question is from Mr. [ Fernando ] [indiscernible] JB Investments.
This question has already been asked before, but could you elaborate in detail, a bit more about the significant drop in the domestic market in terms of sales?
We have mentioned that what was outside our average was during the first half, although, we had a better performance during the second half. We could not offset that. And we lost some volume with that. Our company will reflect our results in the -- our earnings and the EBIT the -- and net profit as we perform at a different line of products and brands.
We had such a drop, considering the market's demand and some other challenges in -- that we had to face last December. And some orders that had to be postponed to January, but nothing so significant.
I would say that we had some critical issues for some brands and with some margins. It was quite a homogeneous drop. We lost summer market share. According to the IBGE, the market kept quite stable. And we had 8% decrease. We have lost almost 8% of market share. And such a market share loss, can that be justified for what reason? Maybe the competition has decreased their price, or because you have decided not establish any sort of battle with the market or competitors. Clients in general are affected, not just Grendene, but everyone. There is an inventory issue as companies, they are trying to decrease their inventory level of volume, they sometimes they want -- they even prefer to lose the sale, and they have to mark down some of their products.
This is a process which should be adjusted, and we have to find a compromise. And with that, we had some suffer, especially in the direct -- it was not into the direct channel, but rather with the wholesalers and distributors that try to reduce their inventory volume.
Therefore, our process as a consequence is to adjust our numbers and sales. That was the main reason. Of course, that when you work with an apparel company with fashion, if you get right to the fashion collections, that may be a reason to improve sales. So we are pretty sure that all these adjustments that we are conducting will increase the market share and lead to better earnings.
[ Lucas Bender ] representing [indiscernible] Investment.
I am Lucas from [indiscernible]. Now I'd like maybe to changing gears and ask what are you doing to renew brands, to release the new products?
And how would you like to improve share, and to touch competition? I know that you have addressed a bit about share. But how about the new initiatives? Could you share that with us, what are you considering to do in the market to compete to other companies -- with other companies?
Thank you, Lucas, for your questions. As I said before, we are adjusting our portfolio. We are incrementing archetype, where we were not acting before in the market. We are allowing more offers and products to our clients, and we always try to have some sort of competitive product to reach better earnings. And that is been carried out throughout all brands of the group.
And we know that we have to do our homework beautifully. Sometimes, we make some errors in some projects. And we are conscious about that. We recognize it, and we are doing whatever we can to improve our portfolio, to increase our product offer and to regain that market share, that will somehow end up losing.
Our next question is from [ Issabel ] [indiscernible].
In fact, I'd like to ask you to elaborate a little bit more about this project opening new stores abroad, Melissa's stores abroad? And if you can let us know a little bit more about sales during this first quarter of the year after all this change?
I'll ask Paulo, who is the Head of Melissa. Can you talk about the project?
This is Paulo. Our international stores of Melissa is following the expansion strategy of the brand. The brand has shown excellent result in the foreign market. And our main purpose is to [ sack ] this network very similar to what we have domestically for Melissa.
To that end, Melissa and Grendene has developed a plan, where we are going to open 5 new stores in the U.S. and later, as soon as coronavirus outbreak allows that, we will open stores in China as well. So that we have a franchise business, such as the Clube Melissa business in Brazil. Hope I have answered your question.
[Operator Instructions] The next question is by [indiscernible] who is an Investor.
Upon analyzing the earnings release and your perspective of shares for 2020, based on the portfolio of products, wouldn't it be interesting -- I don't know if you are considering that already to improve your perspective domestically?
Because in Brazil, there is a forecast of growth. So I think, Grendene could really benefit from that and improve distribution issues and also potential new stores.
I apologize. Can you repeat your question? I could not hear you.
Well, rephrasing it. Considering the domestic market, as we have experienced in Brazil, quite positive forecast for the year. Would it be interesting to work on improving your distributors and your network of distributors here in Brazil to take the best of this potential growth. And maybe have similar own stores of Grendene in Brazil?
Well, we've already started this process. We've hired 6 new distributors for domestic market in Brazil to have better distribution of our products, especially brands Rider and Ipanema.
We have already noticed some improvement in sales in the first quarter, thanks to portfolio adjustments and new distributors.
Well, we would like to close now the Q&A session. Let me now hand it over to Luiz Moroni for his closing remarks.
Once again, thank you all very much for being with us in our teleconference. Have a good day.
The conference call of Grendene is closed now. Thank you very much for your participation. We wish you a great day. And thank you for using Chorus Call. Thank you.
[Statements in English on this transcript were spoken by an interpreter present on the live call].