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 nine and
three-month period ended September 30, 2018. The results are stated
in Brazilian Reais (“R$”) and prepared in accordance with
International Accounting Standard 34, “Interim Financial
Reporting”.
Comparative information for the nine and three-month period
ended September 30, 2017 were restated for the purposes of applying
IFRS 5 "Non-current assets held for sale and discontinued
operations" after approval by the Board of Directors of the sale of
its operations in Mexico.
Third Quarter 2018 Key Highlights
- Growth in net sales: R$417.8 million,
up 0.5% year-on-year on an FX neutral basis
- Discontinuation of B2B operations to
focus on core B2C business with a write-off of R$78.0 million
- Further increase in GMV: R$605.1
million, up 5.5% year-on-year (FX neutral), with Marketplace GMV up
48.1% year-on-year, accounting for 13.0% of total GMV (+4 p.p.
YoY)
- B2C GMV increased 7.4% year-on-year (FX
neutral)
- Improvement in operations: Total net
working capital cycle reduction of 32 days to 13 days over
2Q-2018
- Operating cash flow generation of
R$72.3 million, without contribution from factoring
arrangements
Subsequent Events
- Closing of Netshoes Mexico sale to
Grupo Sierra Capital in October 2018.
Operating and Financial Metrics Highlights
Change % Change
% Operating Data1 3Q-2017 3Q-2018
YoY YoY FX Neutral 9M-2017
9M-2018 YoY YoY FX Neutral Registered
Members (in thousands) 20,160 23,839 18.2% 20,160 23,839 18.2%
Active Customers (in thousands) 6,025 6,721 11.6% 6,025 6,721 11.6%
Invoiced Orders (in thousands) 2,827 2,953 4.4% 8,046 8,564 6.4%
Orders Placed from Mobile Device % 46.7% 58.1% +11.4p.p 43.2% 57.4%
+14.2p.p. Average Basket Size (in R$) 204.9 203.5 (0.7)% 2.9% 204.9
203.9 (0.5)% 2.2% GMV2 (in millions) 593.6 605.1 1.9% 5.5% 1,724.0
1,763.7 2.3% 5.0% B2C GMV (in millions) 579.2 600.9 3.7% 7.4%
1,648.9 1,746.1 5.9% 8.8% Marketplace GMV (as % of total GMV) 8.9%
13.0% +4.0p.p. 7.1% 12.1% +5.0p.p.
Change %
Change % Financial Data (In R$ Millions)
3Q-2017 3Q-2018 YoY YoY FX Neutral
9M-2017 9M-2018 YoY YoY FX Neutral Net
Sales 431.4 417.8 (3.2)% 0.5% 1,262.9 1,241.4 (1.7)% 1.0% Net Sales
- Brazil 397.0 383.3 (3.5)% 1,160.0 1,144.1 (1.4)% Net Sales -
International 34.4 34.5 0.3% 45.6% 102.9 97.3 (5.4)% 28.2% Gross
Margin % 32.7% 8.8% (23.9)p.p 33.2% 23.0% (10.2)p.p. ADJUSTED
EBITDA3 Margin % (4.2)% (26.9)% (22.8)p.p (1.0)% (11.4)%
(10.4)p.p.
(1) As Mexico operation was discontinued during the third
quarter of 2018, operating and financial figures exclude Mexico in
2017 and 2018.
(2) For a reconciliation of net sales to GMV, see page 11
below.
(3) For a reconciliation of net loss to Adjusted EBITDA Margin,
see page 12 below
Message from the Founder and CEO, Marcio Kumruian:
The third quarter of 2018 marks an important turning point for
Netshoes, as we took some decisive steps to streamline our
operations and focus on our core B2C business in markets where we
are better positioned to secure medium-term profitable growth.
As part of that strategy, we recently announced our decision to
discontinue our B2B operations. This difficult but necessary step
is a recognition that this diversification attempt generated lower
than expected results. In order to minimize further negative
results, we adjusted the margins of nutrition supplements products,
accelerating sales through our B2C channel. This resulted in a
provision of R$59.3 million in existing nutrition supplement
inventory. In addition, we terminated our commercial agreement with
Midway Labs, filed a lawsuit against them and recorded a provision
of R$18.7 million for Midway receivables that may not be collected.
This impacted our gross profit and adjusted EBITDA in the quarter,
but we believe this discontinuation puts Netshoes on a sounder
footing going forward.
In addition, in October we concluded the sale of our operations
in Mexico. This will allow us to be even more focused on our core
operations in Brazil, where we believe there is significant growth
potential, as evidenced by our Q3 performance in those markets.
This quarter also saw us increase our financial flexibility with
the successful completion of the renegotiation with banks of our
working capital and debenture credit lines, increasing the original
maturity of the contracts by one year, to 2021, and obtaining a
12-month grace period on principal amortization. With this
renegotiation, the Company eliminated R$107.7 million in debt
amortization through the first half of 2019 and brought short-term
debt down to 5% of total debt, compared to 46% in 2Q-2018.
These important developments were accompanied by some further
advances in our operations that attest to the strength of our
underlying business. The number of active customers was up by
double digits, to more than 6.7 million. Our net sales rose 0.5%
and total GMV rose 5.5% on an FX neutral basis, with higher orders
and average basket, reflecting the 48.1% year-on-year increase in
marketplace GMV. Thanks to a strong reduction in working capital
requirements, we generated a solid R$72.3 million in operating cash
flow (without contribution from factoring arrangements).
We remain focused on executing our new strategy aimed at
achieving profitability in our B2C online operations, and our teams
are fully mobilized to deliver a strong Black Friday and Christmas
period with a superior customer experience.
Our actions during the third quarter reaffirm our commitment to
our renewed strategy, turning a page to continue to build our
medium-term growth on a more solid foundation.
Overview of Third Quarter 2018 Results
Change % Change
% Consolidated P&L (In R$ Millions)(1)
3Q-2017 3Q- 2018 YoY FX Neutral
9M- 2017 9M-2018(6) YoY FX
Neutral GMV(2) 593.6 605.1
1.9 % 5.5 % 1,724.0 1,763.7 2.3
% 5.0 % Net Sales - Brazil 397.0 383.3
(3.5)% 1,160.0 1,144.1
(1.4)% Net Sales -
International 34.4 34.5
0.3 % 45.6 % 102.9 97.3
(5.4)% 28.2 % Net Sales 431.4
417.8 (3.2)% 0.5 % 1,262.9
1,241.4 (1.7)% 1.0 % Cost of Sales (290.4)
(381.0)
31.2 % (843.8) (955.6)
13.2 %
Gross Profit 141.0 36.8 (73.9)%
419.1 285.8 (31.8)% % Gross Margin 32.7
% 8.8 % (23.9)p.p. 33.2 % 23.0 % (10.2)p.p.
Operating
Expenses (159.0) (149.3) (6.1)%
(431.3) (426.7) (1.1)% % of Sales (36.8)%
(35.7)% (1.1)p.p. (34.2)% (34.4)% 0.2p.p. Selling and Marketing
Exp. (ex-A&D) (127.4) (110.2)
(13.5)% (341.3) (322.7)
(5.4)% % of Sales (29.5)% (26.4)% (3.2)p.p. (27.0)% (26.0)%
(1.0)p.p. General and Administrative Exp. (ex-A&D) (30.4)
(35.2)
15.8 % (86.8) (98.1)
13.0 % % of Sales (7.1)%
(8.4)% 1.4p.p. (6.9)% (7.9)% 1.0p.p. Other Operating Expenses (1.1)
(3.8)
256.3 % (3.2) (5.9)
85.3 % % of Sales (0.2)%
(0.9)% 0.7p.p. (0.3)% (0.5)% 0.2p.p.
ADJUSTED
EBITDA(3) (17.9) (112.5) (527.4)%
(12.2) (140.9) (1055.1)% % of
Sales (4.2)% (26.9)% (22.8)p.p. (1.0)% (11.4)% (10.4)p.p. Certain
Other Net Financial Result(4) 0.8 (3.2)
(489.9)% (4.3)
(11.5)
164.9 % % of Sales 0.2 % (0.8)% (1.0)p.p.
(0.3)% (0.9)% 0.6p.p.
EBITDA(3) (17.1)
(115.7) (576.3)% (16.5) (152.4)
(822.1)% % of Sales (4.0)% (27.7)% (23.7)p.p. (1.3)%
(12.3)% (11.0)p.p. Amortization and Depreciation (7.2) (11.6)
61.2 % (22.7) (45.6)
100.8 % % of Sales (1.7)% (2.8)%
1.1p.p. (1.8)% (3.7)% 1.9p.p. Net Adjusted Financial Result(4)
(19.2) (11.9)
(37.7)% (69.6) (38.3)
(44.9)% % of
Sales (4.4)% (2.9)% (1.6)p.p. (5.5)% (3.1)% (2.4)p.p. Monetary
position gain (loss), net(5) - 3.4
- - 6.1
- % of
Sales - 0.8 % - - 0.5 % -
Loss Before Income
Tax (43.5) (135.9) 212.5%
(108.8) (230.3) 111.6 % % of Sales
(10.1)% (32.5)% 22.4p.p. (8.6)% (18.5)% 9.9p.p. Current Income Tax
- (0.7)
- - (0.9)
- Net Loss from
continuing operations (43.5) (136.6)
214.0% (108.8) (231.1) 112.4%
% of Sales (10.1)% (32.7)% 22.6p.p. (8.6)% (18.6)% 10.0p.p.
Net Loss from Descontinued Operations(1) (4.3) (4.0)
(6.5)%
(11.8) (10.4)
(12.2)% Net Loss
(47.8) (140.6) 194.4 % (120.6)
(241.5) 100.2 % % of Sales (11.1)% (33.6)%
22.6p.p. (9.6)% (19.5)% 9.9p.p.
(1) Due to the sale of Mexico’s operation in October 2018,
Mexico is presented as discontinued operation in 2017 and 2018
figures.
(2) For a reconciliation of net sales to GMV, see page 11
below.
(3) For a reconciliation of EBITDA and Adjusted EBITDA, please
see page 12.
(4) For a reconciliation of financial income/expense to Certain
Other Net Financial Result and Net Adjusted Financial Result, see
page 11.
(5) Inflation accounting in accordance with IAS 29 Financial
Reporting in Hyperinflationary Economies in the Argentinean
subsidiary.
(6) Consolidated financial figures for the nine-month period
ended September 30, 2018 include the hyperinflation impacts in
P&L for the six month-period ended June 30, 2018. This
adjustment was not included in the unaudited condensed consolidated
financial statements for the six-month period ended June 30,
2018.
Operating Metrics
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 (discontinued in 3Q-2018); and (2) International,
which consists of the B2C e-commerce operation in Argentina.
Registered members (excluding Mexico) increased 18.2%
year-on-year to 23.8 million in 3Q-2018. Active customers reached
6.7 million, up 11.6% year-on-year.
The shift of consumer purchasing habits to mobile devices has
continued, with 58.1% of total orders placed from mobile devices in
3Q-2018, an 11.4 p.p. increase over 3Q-2017.
GMV from the B2C operation grew 7.4% year-on-year on an FX
neutral basis in 3Q-2018 (3.7% on a reported basis), mainly driven
by:
- a 1.8% year-on-year increase in
Netshoes Brazil GMV, mainly impacted by the strategic mix of
product shift from 1P to 3P (products with lower margin or slower
replacement cycle);
- a 14.8% year-on-year increase in
Zattini’s GMV, reflecting the success of the Company’s new strategy
in fashion portfolio management.
- Both Netshoes and Zattini showed GMV
growth acceleration throughout the quarter:
GMV - YoY Growth Jul-18 Aug-18
Sep-18 3Q-18 Netshoes Brazil (2.1)% 1.6
% 6.3 %
1.8 % Zattini (6.2)% 29.2 % 31.5 %
14.8 %
- a 44.6% year-on-year increase (local
currency) in Netshoes International GMV (Argentina operation), but
down 0.4% on a reported basis, due to the strong FX impact.
- In 3Q-2018, invoiced orders increased
4.4% year-on-year while average basket size increased 2.9% on an FX
neutral basis.
As previously announced, in 3Q-2018 the Company discontinued its
B2B operation dedicated to the sales of nutrition supplements and
vitamins. GMV for the B2B operation amounted to R$4.2 million in
3Q-2018, down 70.4% year-over-year (impacting the consolidated
Company’s growth by 1.8 p.p.).
Total consolidated GMV in 3Q-2018 was R$605.1 million, up 5.5%
on an FX neutral basis and up 1.9% on a reported basis.
Marketplace GMV (Netshoes & Zattini in Brazil) amounted to
R$78.5 million and accounted for 13.0% of total consolidated GMV
(14.1% of GMV Brazil), an increase of 48.1% year-on-year. As of
September 30, 2018, the Company’s total vendor base comprised 980
qualified third-party B2C vendors, an increase of 320 vendors
year-on-year and an increase of 80 vendors over 2Q-2018.
Revenue
Consolidated net sales were R$417.8 million in 3Q-2018, a 3.2%
decrease year-on-year (+0.5% on an FX neutral basis). Net sales in
Brazil decreased 3.5% year-on-year to R$383.3 million.
Net sales for the International business (Argentina) in 3Q-2018
was R$34.5 million, up 45.6% year-on-year in local currency and up
0.3% on a reported basis.
Gross Profit
Gross profit in 3Q-2018 was R$36.8 million, compared to R$141.0
million in the same period last year. Gross margin was 8.8% in
3Q-2018, compared to 32.7% in 3Q-2017. During the quarter the
ramp-up of the marketplace operation and other product
margin-enhancing initiatives contributed 1.7 p.p. to gross margin,
offset by the negative impact from the 1P categories the Company is
shifting to the marketplace. However, management’s short-term
actions aimed at turning around the operation and other
non-operating impacts negatively affected gross margin by 26.2 p.p.
These impacts were:
- (19.9) p.p. due to the discontinuation
of the B2B business;
- (1.7) p.p. related to higher net
shipping costs and other cost of sales, mainly affected by the
acceleration of supplement sales through the Company’s B2C
channel;
- (1.8) p.p. due to lower tax benefits as
a result of 2016 tax change (EC87) and to the shift of Zattini’s
operation to the Barueri distribution center, resulting in higher
tax charges to the P&L but allowing the use of R$70 million in
tax credits over the next 15 months (estimated);
- (2.2) p.p. impact from APV (Adjustment
to Present Value) as a direct result of the Company’s adjustments
in procurement activities to reduce inventory levels and
hyperinflation accounting adjustment in Argentina.
Despite some of the temporary negative impacts on margins, the
Company’s gross product margin has started to show a positive
evolution throughout 3Q-2018, reflecting the improvements made in
inventory planning, commercial negotiations and pricing policies.
These improvements are still mostly concentrated in fashion, as
Zattini has a shorter procurement cycle.
It is important to highlight that the improvements in product
margin in Fashion, approximately 6 p.p. from July to September, are
accompanied by an acceleration in GMV growth at Zattini. (as
described above).
Gross Product Margin – B2C Brazil Jul
Aug Sep 3Q Year 2017 31.8% 34.2%
33.2%
33.0% Year 2018 32.4% 33.9% 34.5%
33.6%
Operating Expenses
Operating expenses, net of depreciation and amortization, were
R$149.3 million in 3Q-2018, 6.1% lower than 3Q-2017. As a
percentage of net sales, operating expenses were 35.7%, compared to
36.8% in 3Q-2017. During the quarter the discontinuation of the
nutrition supplement B2B business impacted operating expenses by
R$5.1 million or 1.2 p.p.
Selling and marketing expenses, net of depreciation and
amortization, decreased 13.5% year-on-year in 3Q-2018 to R$110.2
million, representing 26.4% of net sales compared to 29.5% of net
sales in 3Q-2017. This decrease was mainly because of a lower
allowance for doubtful accounts expenses and lower chargeback
expenses, partially offset by the already mentioned R$5.1 million
expenses related to the discontinuation of the B2B business.
General and administrative expenses, net of depreciation and
amortization, were R$35.2 million in 3Q-2018, 15.8% higher in
comparison to 3Q-2017, representing 8.4% of net sales, versus 7.1%
of net sales in 3Q-2017. This increase is mainly related to higher
SOP, consulting and layoff expenses, most of them being one-off
expenses.
Adjusted EBITDA and Net Loss
Consolidated Adjusted EBITDA was a negative R$112.5 million in
3Q-2018 (-26.9% Adj. EBITDA margin) compared to negative R$17.9
million in 3Q-2017 (-4.2% Adj. EBITDA margin). This result was due
to negative R$84.2 million from the B2B operations, negative R$21.1
million from the Brazilian B2C and Holding operations and negative
R$7.2 million from the Argentina operations.
- Adjusted EBITDA for the Brazilian
operation in 3Q-2018 was a negative R$100.3 million (-26.2% Adj.
EBITDA margin), which includes the R$84.2 million negative result
from the B2B operations and R$16.1 negative result from the B2C
operations. The negative R$16.1 million result from B2C operations
includes negative R$7.3 million from Midway sales through B2C,
negative R$5.3 million from Adjustment to Present Value (APV) and
negative R$4.2 million from higher sales taxes in Zattini’s
migration to Barueri distribution center.
- Adjusted EBITDA for the International
operation (Argentina only) in 3Q-2018 was a negative R$7.2 million
(-20.9% Adj. EBITDA margin), compared to a negative R$4.5 million
in 3Q-2017 (-13.1% Adj. EBITDA margin). In 3Q-2018, Adj. EBITDA was
negatively impacted by a R$3.6 million non-cash effect of the
hyperinflation accounting adjustment in Argentina.
Due to the above-mentioned effects, the consolidated net loss
from continuing operations, which excludes Mexico, was R$136.6
million in 3Q-2018 (-32.7% net margin), compared to a net loss of
R$43.5 million (-10.1% net margin) in 3Q-2017. Total impact from
the B2B write-offs on Net Loss was R$78.0 million during the
quarter, compared to R$14.7 million in 3Q-2017. Argentina
hyperinflation adjustments in net loss in 3Q-2018 amounted to
negative R$1.8 million.
Balance Sheet and Cash Flow
In 3Q-2018, the Company generated R$72.3 million in net cash
flow from operating activities excluding the contribution from
factoring arrangements (see table below). Considering the lower use
of factoring arrangements, operating cash generation was R$30.4
million, reflecting mainly the R$51.5 million improvement in
working capital. In comparison to 3Q-2017, the Company recorded a
R$16.1 million improvement in operating cash generation, or R$81.1
million without the contribution of the factoring arrangements.
As stated previously, management will continue to adjust
factoring arrangements to run the business with available liquidity
of around R$50 million. During the quarter, the lower use of the
arrangements consumed R$41.8 million of operating cash flow, while
in 3Q-2017 they generated R$23.1 million in operating cash
flow.
Cash used in investing activities amounted to R$30.8 million in
3Q-2018 and was mainly related to the development of the Company’s
information technology infrastructure. In 3Q-2017, cash used in
investing activities amounted to R$8.3 million.
Cash used in financing activities amounted to R$14.9 million in
3Q-2018 compared to R$102.9 million in 3Q-2017 as a result of the
successful debt renegotiation announced in early August 2018,
extending the original maturity of the contracts by one year (to
2021) and establishing a 12-month grace period on principal
amortization. This renegotiation eliminated R$107.7 million in debt
amortization during the second half of 2018 and first half of
2019.
Consequently, the change in cash and cash equivalents resulted
in a consumption of R$24.7 million in 3Q-2018 compared to a R$105.8
million consumption in 3Q-2017. Cash and cash equivalents as of
September 30, 2018 were R$50.6 million, compared to R$310.6 million
as of September 30, 2017.
It is important to highlight that neither the B2B write-off nor
Argentina hyperinflation adjustments made in 3Q-2018 had any cash
effect during the period.
Cash Flow Statement (In R$ Millions)(1)
3Q-2017 3Q-2018
9M-2017 9M-2018 Net loss from
continuing operations (43.5) (136.6) (108.8) (231.1) Depreciation
and amortization 7.2 12.0 22.7 46.0 Interest expense, net 22.9 13.9
83.8 45.0 Others 16.8 64.4 14.9 85.4
Adjusted Net Loss
3.5 (46.3) 12.7 (54.8) Trade
accounts receivable 27.7 (17.9) 112.5 (13.1) Inventories (52.1)
26.3 (93.1) 48.5 Trade accounts payable / Reverse Factoring 30.4
43.1 (22.6) (138.6)
Changes in Working Capital 5.9
51.5 (3.2) (103.1) Restricted Cash 3.9
3.5 7.0 1.3 Recoverable taxes (14.5) 8.1 (49.8) 15.0 Judicial
deposits (7.1) (2.1) (30.7) (8.2) Accrued expenses 1.9 3.2 (30.1)
(11.9) Others 20.7 12.5 (2.1) 2.9
Total Changes in Assets and
Liabilities 4.9 25.2 (105.8) (0.9)
Net Cash Provided by (Used In) Continuing Operating
Activities 14.3 30.4 (96.3) (158.8)
Capex (16.0) (29.2) (43.1) (80.7) Interest received on
installment sales 0.9 0.0 1.1 1.2 Restricted cash 6.8 (1.6) 7.4
(0.3)
Net Cash Provided by (Used in) Investing Activities
(8.3) (30.8) (34.6) (79.8)
Proceeds / Payment of debt (80.0) (2.9) (9.4) (57.0) Payments of
interest (21.8) (12.0) (81.8) (43.4) Proceeds from issuance of
common stock (1.1) 0.0 423.4 0.0
Net Cash Provided by (Used in)
Financing Activities (102.9) (14.9) 332.2
(100.5) Net cash provided by discontinued
operations(1) 3.4 (1.8) 3.2 1.3 Effect of exchange rate changes on
cash and cash equivalents (12.2) (7.7) (5.2) (7.6)
Change in Cash and Cash Equivalents
(105.8) (24.7) 199.3 (345.4)
Cash and cash equivalents, beginning of period 416.4 75.3
111.3 396.0
Cash and cash equivalents, end of period 310.6
50.6 310.6 50.6
(1) Due to the sale of Mexico’s operation in October 2018,
Mexico is presented as discontinued operation in 2017 and 2018.
Factoring Arrangements Impact: 3Q-2017
3Q-2018 9M-2017
9M-2018 Operating Cash Flow before Factoring
Arrangements (8.8) 72.3 (163.5)
(8.2) (-) Credit card factoring (accounts receivable) 13.1
(28.5) 55.7 (80.0) (-) Reverse factoring (accounts payable) 10.0
(13.4) 11.5 (70.6)
Total Factoring Arrangements 23.1
(41.8) 67.2 (150.6) Operating Cash Flow
after Factoring Arrangements 14.3 30.4
(96.3) (158.8)
In 3Q-2018, the Company’s net working capital cycle was 13 days,
32 days lower than in both 3Q-2017 and 2Q-2018. This reduction was
mainly a result of the inventory write-off of R$59.3 million (18
days) related to the discontinuation of the B2B business and of the
improved inventory management at both Netshoes and Zattini in
Brazil (12 days).
The remaining inventory of Midway nutritional products represent
R$33.2 million or 10 inventory days at the end of 3Q-2018.
The trade accounts payable cycle was 105 days, compared to 109
days in 3Q-2017 and 101 days in 2Q-2018.
In Days(1) 3Q-2017
4Q-2017 1Q-2018 2Q-2018
3Q-2018 Trade Accounts Receivable 13 19 18 17 19 Inventories
140 143 146 129 99 Trade Accounts Payable / Reverse Factoring 109
156 102 101 105
Cash Conversion Cycle 45 5
62 45 13
(1) As Mexico operations were discontinued during the third
quarter of 2018, the cash conversion cycle excludes Mexico both in
2017 and 2018 periods.
In 3Q-2018 total indebtedness was R$228.2 million, compared to
R$239.1 million in 2Q-2018. As previously mentioned, in August
2018, the Company successfully completed the renegotiation with
banks of its working capital and debenture credit lines, extending
the original maturity of the contracts by one year (to 2021) and
establishing a 12-month grace period on principal amortization.
With this renegotiation, the Company eliminated R$107.7 million in
debt amortization during the the second half of 2018 and the first
half of 2019. As a result, as of September 30, 2018, 5% of total
debt was short-term, compared to 46% in 2Q-2018.
DEBT (In R$ Millions) 3Q-2017
4Q-2017 1Q-2018 2Q-2018
3Q-2018 Working Capital 191.5 175.0
157.1 147.9 138.4 Short-term 67.3 68.3 66.1
72.7 11.1 Long-term 124.2 106.7 91.0 75.2 127.3
Debenture
93.7 84.2 74.9 65.5 64.2
Short-term 38.0 37.7 37.7 37.6 - Long-term 55.8 46.5 37.2 27.9 64.2
Other 1.5 26.7 25.9 25.7
25.7 Short-term 1.5 0.5 0.3 0.1 1.1 Long-term - 26.2 25.5
25.6 24.6
TOTAL DEBT
(R$) 286.7 286.0 257.8 239.1
228.2 Short-term (%) 37% 37% 40% 46% 5% Long-term (%) 63%
63% 60% 54% 95%
(-) Total Cash (342.7) (430.4)
(100.1) (110.7) (84.0) Cash and cash
equivalents(1) (313.9) (396.0) (60.7) (75.3) (50.6) Restricted cash
(28.8) (34.4) (39.5) (35.4) (33.5)
NET DEBT (R$)
(56.0) (144.4) 157.7 128.4 144.2
(1) Excludes cash balance from Mexico operation.
Subsequent Events:
Sale of Netshoes’ operations in Mexico
On October 11, 2018 the Company concluded the sale of its
subsidiaries in Mexico to Grupo Sierra Capital, a private equity
fund. This divestment is in line with the Company’s strategy of
focusing on its core operations in Brazil increasing profitability
and creating long-term value for shareholders.
Agreement with the Brazilian Federal District Attorney’s Office
in connection with previously disclosed personal data incident
In line with principles of transparency and best practices,
Netshoes announces that it reached on October 3, 2018 an agreement
(Termo de Ajustamento de Conduta) with the Brazilian Federal
District State Attorney’s Office (Ministério Público Estadual do
Distrito Federal e Territórios) in connection with the data
incident previously disclosed to the market on February 26, 2018.
Netshoes agreed to pay a fine in the amount of R$500,000.00. In
return, the Brazilian Federal District State Attorney’s Office will
terminate its administrative legal proceeding into this incident.
This agreement is still subject to ratification by Brazilian
courts.
3Q-2018 Earnings Conference Call
A conference call with live webcast will be held tomorrow,
November 14, 2018 at 8:30 am (Eastern Time).
Investors and other interested participants can access the call
by dialing 1-877-883-0383 in the U.S. and 1-412-902-6506
internationally. The entry number for the conference line is
4012929. An archived webcast will be available on our IR website.
For more information visit: http://investor.netshoes.com.
About Netshoes
Founded in 2000, Netshoes is the leading sports and lifestyle
online retailer in Latin America and one of the largest online
retailers in the region, with operations in Brazil and Argentina.
Through the websites Netshoes, Zattini and Shoestock, as well as
through partner-branded store sites the Company manages, it offers
customers a wide selection of products and services for sports,
fashion and beauty.
Core to the Company’s success has been a relentless focus on
delivering a superior customer experience. As one of the first
companies in Latin America to provide online retail offerings,
Netshoes benefits from its early mover advantage, which has allowed
the Company to capture significant market share and achieve a
leadership position in a large and expanding addressable market.
For more information, visit: http://investor.netshoes.com
Forward-Looking Statements
This press release, prepared by Netshoes (Cayman) Limited (the
“Company”), contains “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1993, as amended,
and Section 21E of the Securities Exchange of 1934, as amended.
Statements contained herein that are not clearly historical in
nature, including statements about the Company’s strategies and
business plans, are forward-looking, and the words “anticipate,”
“believe,” “continues,” “expect,” “estimate,” “intend,” ”strategy,”
“project” and similar expressions and future or conditional verbs
such as “will,” “would,” “should,” “could,” “might,” “can,” “may,”
or similar expressions are generally intended to identify
forward-looking statements. The Company may also make
forward-looking statements in its periodic reports filed with the
U.S. Securities and Exchange Commission (the “SEC”), in press
releases and other written materials and in oral statements made by
its officers and directors. These forward-looking statements speak
only as of the date they are made and are based on the Company’s
current plans and expectations and are subject to a number of known
and unknown uncertainties and risks, many of which are beyond the
Company’s control. A number of factors could cause actual results
to differ materially from those contained in any forward-looking
statement, including but not limited to the following: Company’s
goals and strategies; Company’s future business development;
Company’s ability to maintain sufficient working capital, the
continued growth of e-Commerce in Latin America, the Company’s
ability to predict and react to changes in consumer demand or
shopping patterns, Company’s ability to retain or increase
engagement of consumers, Company’s ability to maintain or grow its
net sales or business, general economic and political conditions in
the countries where it operates. Further information regarding
these and other risks is included in the Company’s filings with the
SEC. As a consequence, current plans, anticipated actions and
future financial position and results of operations may differ
significantly from those expressed in any forward-looking
statements in this announcement. You are cautioned not to unduly
rely on such forward-looking statements when evaluating the
information presented as there is no guarantee that expected
events, trends or results will actually occur. We undertake no
obligation to update any forward-looking statements, whether as a
result of new information or future events or for any other
reason.
This press release may also contain estimates and other
information concerning our industry that are based on industry
publications, surveys and forecasts. This information involves a
number of assumptions and limitations, and have not independently
verified the accuracy or completeness of the information.
Non-IFRS Financial Measures
The Company presents non-IFRS measures when it believes that the
additional information is useful and meaningful to investors.
Non-IFRS financial measures do not have any standardized meaning
and are therefore unlikely to be comparable to similar measures
presented by other companies. The presentation of non-IFRS
financial measures is not intended to be a substitute for, and
should not be considered in isolation from, the financial measures
reported in accordance with International Financial Reporting
Standards (“IFRS”), as issued by the International Accounting
Standards Board.
This press release includes unaudited non-IFRS financial
measures, including GMV, Adjusted Selling and Marketing Expenses,
Adjusted General and Administrative Expenses, Net Adjusted
Financial Result, Certain Other Net Financial Result, Adjusted
Operating Expenses, EBITDA, EBITDA Margin, EBITDA Brazil and EBITDA
International.
(1): “GMV” is defined as the sum of net sales, returns, GMV from
marketplace and net sales taxes, less marketplace and NCard
activation commission fees;
(2) “Net Adjusted Financial Result” is defined as the sum of
financial income and financial expenses less “Certain Other Net
Financial Result“;
(3) “Certain Other Net Financial Result” is defined as the sum
of foreign exchange gains/losses, derivative financial instruments
gains/losses, bank charges and other financial income/expenses;
(4) “Adjusted EBITDA” is defined as net income/loss, less net
financial result, less income tax, less depreciation and
amortization expenses;
(5) “Adjusted EBITDA Brazil” or “EBITDA Brazil” is defined as
Adjusted EBITDA or EBITDA for our operation in Brazil;
(6) “Adjusted EBITDA International” or “EBITDA International” is
defined as Adjusted EBITDA or EBITDA for our operations in
Argentina;
(7) “EBITDA” is defined as Adjusted EBITDA plus Certain Other
Net Financial Result;
(8) “Adjusted EBITDA Margin” or “EBITDA Margin” is defined as
Adjusted EBITDA or EBITDA divided by net sales for the relevant
period, expressed as a percentage.
The following table shows the reconciliation for GMV, as
described above:
GMV – Reconciliation
(In R$ Millions)
3Q-2017 3Q-2018 9M-2017
9M-2018 Net sales 431.4 417.8 1,262.9 1,241.4
Add (subtract): Sales taxes, net 75.7 86.6 225.6 251.8
Returns 45.2 37.8 139.8 101.3 Marketplace commission fees (11.1)
(14.9) (24.7) (42.0) NCard activation commission fees (0.6) (0.7)
(1.3) (1.8)
Sub-Total: 540.6 526.6
1,602.3 1,550.7 GMV from marketplace 53.0 78.5
121.7 213.0
GMV
593.6 605.1 1,724.0 1,763.7
The following table shows the reconciliation for Net Adjusted
Financial Result and Certain Other Net Financial Result as
described above:
Net Financial Result Reconciliation
(In R$ Millions)
3Q-2017 3Q-2018 9M-2017
9M-2018 Financial Income 8.8 7.0
23.6 13.9 Financial Expenses (27.2 ) (22.1 ) (97.5 ) (63.7 )
Net
Financial Result (18.3 ) (15.2 )
(73.9 ) (49.8 ) Subtract Certain
Other Net Financial Result: Certain Other Financial Income:
Foreign exchange gain (0.8 ) (4.7 ) (1.2 ) (5.3 ) Derivative
financial instruments gain 0.0 0.0 (0.8 ) 0.0 Other Financial
Income (0.0 ) (0.0 ) (0.0 ) (0.0 ) Certain Other Financial
Expenses: Foreign exchange loss (1.1 ) 4.4 0.7 8.9 Derivative
financial instruments loss 0.0 0.0 0.0 0.0 Bank charges 0.8 1.0 4.8
3.3 Other Financial Expenses 0.3 2.5 0.7 4.5
Net Adjusted Financial Result (19.2 )
(11.9 ) (69.6 ) (38.3 )
1) Net Financial Result: consists of Interest
income/expenses, Imputed interest on installment sales, Imputed
interest on credit purchases, Debt issuance costs, Foreign exchange
gains/loss, Derivative financial instruments gains/loss, Bank
charges and Other financial income/expenses.
The following table shows the reconciliation for EBITDA, EBITDA
Margin, Adjusted EBITDA and Adjusted EBITDA margin as described
above:
Consolidated EBITDA Reconciliation
(In R$ Millions)
3Q-2017 3Q-2018 9M-2017
9M-2018 Net loss from continuing
Operations (43.5 ) (136.6 ) (108.8 ) (231.1 )
Add
(subtract): (-) Income tax expense - 0.7 - 0.9 (-) Monetary
gain (loss), net - (3.4 ) - (6.1 ) (-) Net Financial Result 18.3
15.2 73.9 49.8 (-) Depreciation and Amortization 7.2 11.6
22.7 45.6
Adjusted EBITDA (17.9
) (112.5 ) (12.2 ) (140.9
) (+) Certain Other Net Financial Result 0.8 (3.2 )
(4.3 ) (11.5 )
EBITDA (17.1 ) (115.7
) (16.5 ) (152.4 ) Net Sales
431.4 417.8 1,262.9 1,241.4
Adjusted
EBITDA Margin % (4.2 )% (26.9 )%
(1.0 )% (11.4 )% EBITDA Margin %
(4.0 )% (27.7 )% (1.3 )%
(12.3 )%
(1) Consolidated EBITDA includes Corporate/Holding expenses not
included in EBITDA Brazil and EBITDA International.
EBITDA Brazil Reconciliation
(In R$ Millions)
3Q-2017 3Q-2018 9M-2017
9M-2018 Net loss from continuing Operations
(32.3) (122.9) (71.8) (181.7)
Add (subtract): (-) Income tax
expense - - - - (-) Monetary gain (loss), net - - - - (-) Net
Financial Result 16.3 12.0 66.0 41.5 (-) Depreciation and
Amortization 6.3 10.7 19.9 29.7
Adjusted EBITDA (9.7)
(100.3) 14.1 (110.6) (+) Certain Other Net
Financial Result 1.4 (2.1) (3.5) (8.5)
EBITDA (8.4)
(102.4) 10.6 (119.1) Net Sales 397.0 383.3
1,160.0 1,144.1
Adjusted EBITDA Margin % (2.5)%
(26.2)% 1.2 % (9.7)% EBITDA Margin %
(2.1)% (26.7)% 0.9 % (10.4)% EBITDA
International(1) Reconciliation
(In R$ Millions)
3Q-2017 3Q-2018 9M-2017
9M-2018 Net loss from continuing Operations
(6.7) (7.9) (24.8) (24.2)
Add (subtract): (-) Income tax
expense - 0.7 - 0.9 (-) Monetary gain (loss), net - (3.4) - (6.1)
(-) Net Financial Result 2.1 3.0 6.6 8.3 (-) Depreciation and
Amortization 0.1 0.4 0.5 0.8
Adjusted EBITDA (4.5)
(7.2) (17.7) (20.4) (+) Certain Other Net
Financial Result (0.5) (1.0) (1.6) (2.8)
EBITDA (5.1)
(8.2) (19.2) (23.2) Net Sales 34.4 34.5 102.9
97.3
Adjusted EBITDA Margin % (13.1)% (20.9)%
(17.2)% (21.0)% EBITDA Margin % (14.7)%
(23.6)% (18.7)% (23.9)%
(1) Due to the sale of Mexico’s operation in October 2018,
Mexico is presented as discontinued operation in 2017 and 2018.
Certain Definitions:
Registered members
The sum of all people that have completed the registration form
in all the Company’s websites.
Active customers
Customers who made purchases online with the Company during the
preceding twelve months as of the relevant dates.
Invoiced orders
The total number of orders invoiced to active customers during
the relevant period (online and offline sales)
Orders placed from mobile devices
The sum of total orders placed by active customers through the
Company’s mobile site and applications as a percentage of total
orders placed by active customers for the relevant period.
Average basket size
The sum of invoiced order value in connection with a product
sale (online and offline), including shipping fees and taxes,
divided by the number of total invoiced orders for the relevant
period. Excludes B2B and NCard operations.
Gross merchandise volume (“GMV”)
The sum of net sales, returns, GMV from marketplace and net
sales taxes. Excludes marketplace and NCard activation commission
fees.
Net Working Capital Cycle
The sum of the balances of (a) Trade accounts receivable and (b)
Inventories, less (c) the balance of Trade accounts payable, plus
the balance of (d) Reverse factoring.
Partner-branded stores
All partner-branded online stores that the Company manages.
Foreign Exchange Neutral (“FX Neutral”)
Growth rate shown on constant local currency basis, in order to
demonstrate what the results would have been had exchange rates in
Argentina remained constant during the period comparison.
NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Financial
Position
As of December 31, 2017 and September 30, 2018
(Reais and Dollars in thousands)
December 31, September
30, Assets 2017 2018
2018 Current assets: BRL BRL USD
Cash and cash equivalents 395,962 50,569 12,630 Restricted cash
19,397 18,125 4,527 Trade accounts receivables, net 113,168 114,361
28,562 Inventories, net 456,632 331,676 82,838 Recoverable taxes
80,047 84,423 21,085 Other current assets 48,352 18,929 4,728
1,113,558 618,083 154,370
Non-current assets held for sale - 32,590 8,139
Total current assets 1,113,558 650,673
162,509 Non-current assets: Restricted
cash 15,048 15,335 3,830 Judicial deposits 106,914 115,078 28,741
Recoverable taxes 70,765 38,597 9,640 Other assets 1,950 10,189
2,545 Due from related parties 12 7 2 Property and equipment, net
73,039 83,202 20,780 Intangible assets, net 115,839 139,011 34,719
Total non-current assets 383,567 401,419
100,257 Total assets 1,497,125
1,052,092 262,766
NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Financial
Position
As of December 31, 2017 and September 30, 2018
(Reais and Dollars in thousands)
December 31, September
30, Liabilities and Shareholders' Equity 2017
2018 2018 Current
liabilities: BRL BRL USD Trade accounts
payable 365,835 272,619 68,088 Reverse factoring 148,928 78,299
19,556 Current portion of long-term debt 106,577 11,955 2,986 Taxes
and contributions payable 19,875 24,486 6,115 Deferred revenue
3,732 4,026 1,006 Accrued expenses 120,366 96,623 24,132 Other
current liabilities 31,017 30,560 7,632
796,330
518,568 129,515
Liabilities associated with non-current assets held for sale -
30,700 7,667
Total current liabilities 796,330
549,268 137,182 Non-current
liabilities: Long-term debt, net of current portion 179,394
216,283 54,018 Provision for labor, civil and tax risks 12,523
16,822 4,201 Deferred revenue 25,502 23,017 5,749 Other non-current
liabilities 27 629 157
Total non-current liabilities
217,446 256,751 64,125 Total
liabilities 1,013,776 806,019 201,307
Shareholders' equity: Share capital 244 244 61
Additional-paid in capital 1,345,507 1,347,120 336,452 Treasury
shares (1,533) (1,533) (383) Accumulated other comprehensive loss
(13,664) (11,893) (2,970) Accumulated losses (847,125) (1,087,765)
(271,676)
Equity attributable to owners of the parent
483,429 246,173 61,484 Equity attributable to
non-controlling interests (80) (100) (25)
Total shareholders'
equity 483,349 246,073 61,459
Total liabilities and shareholders' equity 1,497,125
1,052,092 262,766
NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Profit or
Loss
For the nine and three months ended September 30, 2017 and
2018
(Reais and Dollars in thousands, except loss per share)
For the nine months ended September 30, For the
three months ended September 30, 2017 2018
2018 2017 2018
2018 BRL BRL USD BRL BRL
USD Net Sales 1,262,899 1,241,368 310,040 431,422 417,809
104,351 Cost of sales (843,813) (955,593) (238,666) (290,395)
(381,028) (95,164)
Gross Profit 419,086
285,775 71,374 141,027 36,781
9,187 Operating expenses: Selling and marketing
expenses (344,372) (327,919) (81,900) (128,579) (111,989) (27,970)
General and administrative expenses (106,447) (138,520) (34,596)
(36,521) (45,084) (11,258) Other operating expenses, net (3,193)
(5,915) (1,478) (1,076) (3,834) (956)
Total operating
expenses (454,012) (472,354) (117,974)
(166,176) (160,907) (40,184) Operating
loss (34,926) (186,579) (46,600)
(25,149) (124,126) (30,997) Financial
income 23,628 13,930 3,480 8,808 6,972 1,741 Financial expenses
(97,515) (63,733) (15,918) (27,153) (22,122) (5,525) Monetary
position (loss) gain, net - 6,120 1,529 - 3,364 840
Loss before income tax (108,813)
(230,262) (57,509) (43,494)
(135,912) (33,941) Income tax expense -
(858) (214) - (676) (169)
Net Loss from continuing
operations (108,813) (231,120)
(57,723) (43,494) (136,588)
(34,110) Net Loss from discontinued operations
(11,814) (10,375) (2,591) (4,259) (3,981) (994)
Net
Loss (120,627) (241,495) (60,314)
(47,753) (140,569) (35,104)
Net loss attributable to: Owners of the Parent from
continuing operations (108,398) (230,715) (57,623) (43,381)
(136,454) (34,080) Owners of the Parent from discontinued
operations (11,814) (10,375) (2,591) (4,259) (3,981) (994)
Non-controlling interests (415) (405) (100) (113) (134) (29)
Loss per share attributable to owners of the Parent Basic and
diluted
(4.63) (7.76) (1.94) (1.83)
(4.52) (1.13)
NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2017 and 2018
(Reais and Dollars in thousands)
Nine months ended September 30, 2017
2018 2018 BRL BRL USD
Cash flows from continuing operating activities:
Net loss
(108,813) (231,120) (57,723) Adjustments to
reconcile net loss to net cash used in operating activities:
Allowance for doubtful accounts 21,637 7,350 1,836 Depreciation and
amortization 22,724 45,979 11,484 Loss on disposal of property and
equipment, and intangible assets 168 307 77 Share-based payment
(13,552) 4,906 1,225 Deferred taxes 858 214 Provision for
contingent liabilities 6,971 6,856 1,712 Interest expense, net
83,832 44,970 11,232 Monetary (gain) loss, net - 2,718 679
Provision for inventory losses (454) 44,220 11,044 Provision for
expected losses, Other non-current assets 18,152 4,534 Other 179 3
1 Changes in operating assets and liabilities:
(Increase)
decrease in: Restricted cash 6,994 1,272 318 Trade accounts
receivable 112,512 (13,053) (3,260) Inventories (93,120) 48,482
12,109 Recoverable taxes (49,838) 14,969 3,739 Judicial deposits
(30,706) (8,165) (2,039) Other assets 2,319 (2,736) (638)
Increase (decrease) in: Derivative financial instruments
(186) - - Trade accounts payable (34,078) (67,927) (16,965) Reverse
factoring 11,489 (70,629) (17,640) Taxes and contributions payable
(719) 6,652 1,661 Deferred revenue (2,493) (2,192) (547) Accrued
expenses (30,135) (11,857) (2,961) Share-based payment (2,058)
(708) (177) Other liabilities 1,033 1,889 472
Net cash provided
by (used in) operating activities (96,296)
(158,804) (39,658) Cash flows from investing
activities: Purchase of property and equipment (5,804) (24,794)
(6,192) Purchase of intangible assets (37,293) (55,873) (13,955)
Interest received on installment sales 1,075 1,161 290 Restricted
cash 7,392 (287) (72)
Net cash provided by (used in) investing
activities (34,630) (79,793) (19,929) Cash
flows from financing activities: Proceeds from debt 108,317 - -
Payments of debt (117,682) (57,040) (14,246) Payments of interest
(81,780) (43,419) (10,844) Proceeds from issuance of common shares
423,388 - -
Net cash provided by (used in) financing
activities 332,243 (100,459) (25,090) Net
cash provided by discontinued operations 3,171 1,306 326 Effect of
exchange rate changes on cash and cash equivalents (5,229) (7,643)
(1,914)
Change in cash and cash equivalents 199,261
(345,393) (86,265) Cash and cash equivalents,
beginning of period 111,304 395,962 98,894
Cash and cash
equivalents, end of period 310,565 50,569 12,630
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181113006217/en/
Investor Relations
ContactOtavio Lyra, Investor Relations OfficerSão Paulo,
BrazilPhone: +55 11
3028-3528Email: ir@netshoes.comhttp://investor.netshoes.com
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