Release Date: February 25, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Alpargatas SA (BSP:ALPA3, Financial) achieved significant progress in operational efficiency, reducing product costs and improving factory and distribution efficiency.
- The company maintained a net cash position and controlled costs, demonstrating strong financial discipline.
- Alpargatas SA gained market share in modern channels and saw a 21% growth in sales in the men's collection.
- Rothy's, a previously underperforming asset, contributed positively in 2024, showing a turnaround in performance.
- The company successfully reduced its portfolio by 50%, focusing on core products and improving inventory management.
Negative Points
- Alpargatas SA faced elevated write-offs from past collections, impacting inventory levels and financial results.
- International performance remained weak, with sales not recovering from declines in previous years due to lack of brand investment and distribution challenges.
- The company experienced a contraction in international market volumes, affecting its exchange rate neutrality.
- Despite improvements, the EBITDA margins in international markets remained negative, indicating ongoing challenges.
- The company still faces challenges in converting high brand awareness into sales in the US market, requiring a revised distribution strategy.
Q & A Highlights
Q: Can you explain the process of inventory liquidation and its impact on the Beyond the Core strategy?
A: Liel Miranda, CEO, explained that the inventory liquidation involved selling through channels with higher margins, culminating in a major Black Friday campaign. The remaining unsellable inventory was written off. The focus remains on core products, with Beyond the Core being complementary. The strategy is to grow the core business, particularly flip-flops, both domestically and internationally.
Q: How does exchange rate volatility affect the business, and what are the plans for excess cash?
A: Andre Natal, CFO, stated that the company aims to be exchange rate neutral, but recent international volume contractions have affected this balance. The plan is to resume international volumes to achieve neutrality. Excess cash is being used to prepay debt, and future options like dividends or buybacks are considered once legal restrictions are lifted.
Q: What is the strategy for the US market, and how is Rothy's performing?
A: Liel Miranda, CEO, emphasized that the US is a priority market due to its size and brand awareness. The strategy involves finding distribution partners to convert brand awareness into sales. Rothy's has shown positive EBITDA and revenue growth, and while no immediate decisions are made, its future will be considered within Alpargatas' broader M&A strategy.
Q: What are the expectations for marketing investments and international market volumes?
A: Liel Miranda, CEO, noted that marketing investments have already shown results, such as increased market share in modern channels and men's products. The focus is on maintaining consistent marketing levels to support brand growth. Internationally, the aim is to recover lost scale in Europe, the US, and Asia, focusing on priority markets.
Q: What are the implications of the current inventory levels and potential future write-offs?
A: Liel Miranda, CEO, assured that current inventory levels are aligned with historical norms, and there is no expectation of significant write-offs in 2025. The inventory is manageable, with ongoing sales of older collections, and the company maintains a disciplined approach to inventory management.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
