At Grendene, owner of Melissa, pandemic generates revolution for growth

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The pandemic was a shocker for the economy and for companies. But a company, in particular, the Grendene, owner of the brands Melissa, Ipanema e Rider, among others, is experiencing an awakening, caused by the combination of the scare with the situation and by the management that took charge of the 2019 business. The balance of the second quarter helps to explain the paths that were adopted and their reasons. Known for its historic cash-free position — the company is worth nearly R$ 10 billion at B3, with more than R$ 2.1 billion invested, for a financial debt of just over R$ 10 million — the Bartelle family company experienced a period of stagnation even before the covid.

Now, however, it is determined to seek new growth fronts: internationalization, through a partnership with 3G Radar focused on distribution, and digitalization are the paths chosen. The robust box gave the company peace of mind to face the pandemic. In the second quarter of this year, the company’s net revenue totaled BRL 358 million, a drop of 10.5% over the nearly BRL 400 million in 2019 and a brutal increase over the BRL 56.7 million in the same period in 2020 — beginning of the acute phase of the health crisis in Brazil. In the second quarter of 2020, the business almost stopped altogether. The uniqueness of the situations was almost a call to action.

Alceu Demartini de Albuquerque, the company’s investor relations director, says that the second quarter was affected by the worsening of the pandemic in the country, again, starting in February and March. With that, once again, as happened in 2020, but on a much smaller scale, there was retention of orders. “The company works by order. In March, we received orders for April and May and, again, there was a scenario of uncertainty. In June, however, there was a strong recovery and the volumes sold surpassed those of May by 85%, which is not common”, he explains, in an interview with EXAME IN.

The drop in volume, for example, was substantially greater than in revenue. In the second quarter, the total number of pairs shipped totaled 23.5 million, a drop of 21.9% — while gross revenue fell by 12.7%. In October of last year and in February of this year, Grendene managed to pass on prices, in the order of 8% to 8.5% each. Now, however, in the executive’s view, there is no more room for that. According to him, throughout 2020, there was a strong increase in the cost of raw materials. With this, the Ebitda margin for the second quarter decreased from 9.5%, in the same period of 2019, to 8.1%, from April to June this year. “In addition, our business has strong economies of scale. The greater the production, the better the margin,” says Albuquerque.

Although he doesn’t see room for further increases, Albuquerque points out that the price of resin is already falling. He believes that this downward trend should continue throughout this year, which will help restore profitability. “The supply in the United States is already normalizing. In addition, there was a significant drop in demand from India, because of covid.”

Recurring EBITDA for the second quarter was BRL 29.1 million, compared to BRL 38.1 million in the same quarter of 2019. Net income dropped almost 33%, to BRL 33.2 million. For a company so capitalized — in excess, in the opinion of many investors — the fall in interest rates is bad news, as financial income suffers. This is what happened in Grendene’s second quarter. Net financial income dropped 9.1% to R$48.7 million.

Albuquerque highlights that the company is positive with the second half of the year, as it sees a significant recovery in demand. Despite this, he does not believe it will be equivalent to the second half of 2020. “Last year, our second quarter was practically nine months, as second quarter orders were held back.”

Joint-venture com 3G Radar

The company expects to sign the definitive documents for the partnership with 3G Radar for the international distribution of Grendene products within 30 days. “The terms and conditions have already been defined, now it’s a matter of contract writing.” The manager is the largest minority shareholder in the business, with around 7% of the total capital. The Bartelle family concentrates around 70% of Grendene, whose initial public offering (IPO) in B3 took place in

“The international shoe market moves US$ 360 billion per year. Our export revenue in the second quarter was US$20 million. There is still a lot to be explored. The domestic market has the roof of a house and the external one, of a building with I don’t know how many floors”, he reinforces. Grendene is looking for a share in the global footwear market, just like the Espadrilles — which has a plan focused on the United States, Europe and Asia. The companies compete directly in the flip flop segment, where the Havaianas and Ipanema brands are located. But there are other fronts that both intend to explore.

“We are one of the largest footwear producers in the world. We are in great condition to conquer space outside Brazil.” It is from this assessment that the partnership with 3G Radar comes. The association was not made due to any difficulty of Grendene’s investment. The purpose of this union was to access the knowledge of the 3G Capital group – the origin of 3G Radar – for retail operations outside Brazil and the ability to attract and retain talent.