Netshoes Limited Announces Second Quarter 2018 Results
Aug. 09, 2018
SÃO PAULO--(BUSINESS WIRE)--Aug 9, 2018--Netshoes (Cayman) Ltd. (NYSE:NETS) (“Netshoes”), Latin America’s leading online retailer of sporting and lifestyle goods, today reported unaudited consolidated financial results for the three and six-month period ended June 30, 2018. The results are stated in Brazilian Reais (“R$”) and prepared in accordance with International Accounting Standard 34, “Interim Financial Reporting”.
Second Quarter 2018 Key HighlightsNet sales of R$449.8 million, down 2.5% year-over-year, impacted by trucker’s strike and warmer winter GMV of R$630.0 million, up 2.0% year-over-year (FX neutral), with Marketplace GMV up 72.7% year-over-year, accounting for 11% of total GMV (+5 p.p. YoY) Adjusted EBITDA of R$0.2 million, with positive EBITDA margin, 1.1 percentage points (p.p.) higher year-over-year Net loss of R$38.1 million, with negative 8.5% net margin Total net working capital cycle reduction of 16 days to 46 days over 1Q-2018, with B2C net working capital reduction of 13 days to 16 days Operating cash flow generation of R$70 million, with cash equivalents of R$75 million
Subsequent EventsDebt restructuring completed: R$107.7 million deferred with twelve months grace period and one-year term extension Agreement to sell Netshoes Mexico to Grupo Sierra Capital
Operating and Financial Metrics Highlights
Message from the Founder and CEO, Marcio Kumruian:
During 2Q-2018 we made important progress on several fronts of the business as we continue to pursue a more moderate growth strategy in our B2C online operation to focus on achieving profitability.
Our B2C online operation grew 6.4% year-over-year on an FX neutral basis, impacted along with the rest of the retail and fashion industry in Brazil by the truckers’ strike in May and a warmer winter season. These events not only affected sales, but also margins during the quarter. In this environment we acted quickly to increase efficiency of our marketing spend while we benefited from lowered technology maintenance costs due to the implementation of our new IT platform. Additionally, we took further steps to rationalize other general and administrative expenses. A combination of these actions resulted in an improvement of our operating results during the quarter.
We have a concrete action plan in place aimed at improving our business economics. We are already seeing initial traction, including a reduction in the inventory cycle by 17 days as compared to 1Q-2018, contributing significantly to the R$70 million operating cash generation. Importantly, we have also restructured of the Company’s bank debt, deferring R$108 million in principal amortization through a twelve-month grace period and a one-year term extension. These changes are providing more financial comfort during the time our operations need to respond to the changes we are implementing in the short-term.
Looking ahead we continue to work hard to strengthen the foundation for long-term sustainable growth. As part of our deep dive into our business, we have engaged a top tier external consultancy firm to work alongside our team to assess our entire product portfolio, the mix shift from 1P to 3P, and our pricing strategy and inventory management, optimizing gross margins and further reducing working capital needs.
We are focused on streamlining SG&A expenses and are preparing to execute a Zero-Base Budget to eliminate inefficiencies. In addition, we continue to reduce losses from our international operations. During 2Q-2018, we managed to improve the international operation’s EBITDA margin by 8.1 p.p. and 5.8 p.p. during the first half of the year.
As announced, in early August we entered into an agreement with Grupo Sierra Capital, a private equity fund that invests in Mexico, Central America and Caribbean, to sell the entirety of our operations in Mexico. This divestment is in line with our strategy of focusing on and expanding those markets with the greatest near to medium term e-commerce growth potential to increase consolidated profitability and create long-term value to shareholders.
The changes we have been implementing throughout the organization are meaningful and we expect them to translate to a more positive result and performance going forward. We are confident that we are building a better, more sustainable business. While the environment has been challenging, we remain convinced that there is significant medium to long-term upside for Netshoes in our markets. We are grateful for your continued support.
Overview of Second Quarter 2018 Results
The Company’s business is organized into two segments: (1) Brazil, which consists of the B2C e-commerce operations of Netshoes (sporting goods) and Zattini (fashion), and the business-to-business (B2B) operation mainly comprised of supplements sales; and (2) International, which includes Argentina and Mexico B2C e-commerce operations.
Registered members increased 20.0% year-over-year to 24.0 million in 2Q-2018, of which 6.8 million, or 28.5%, were active customers (up 14.9% year-over-year).
The Company continued migration of consumer purchasing habits to mobile devices, with 54.1% of total orders placed from mobile devices in 2Q-2018, a 11.2 p.p. increase over 2Q-2017.
GMV from the B2C operation grew 6.4% year-over-year on an FX neutral basis in 2Q-2018 (4.2% on as reported basis), driven by a 4.1% year-over-year increase in Netshoes Brazil GMV, a 14.2% year-over-year increase in Zattini’s GMV, and an 8.0% year-over-year increase in Netshoes International GMV.
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