Gross Merchandise Volume up 15.4%
year-over-year, or 17.0% on an FX neutral basis, to R$609.5
million
Net sales growth of 7.3% year-over-year, or
8.8% on an FX neutral basis, to R$444.6 million
Netshoes (Cayman) Ltd. (NYSE:NETS) (“Netshoes”), Latin America’s
leading online retailer of sporting and lifestyle goods, today
reported unaudited consolidated financial results for the three and
nine-month periods ending September 30, 2017. The results are
stated in Brazilian Reais (“R$”) and prepared in accordance with
International Accounting Standard 34, “Interim Financial
Reporting.”
Marcio Kumruian, Founder and CEO of
Netshoes, commented:
Through September, we continued to deliver Gross Merchandising
Volume (GMV) growth combined with an expansion of our market
leading position in sporting goods, while continuing to scale in
fashion and beauty. As we benefit from continued growth in
e-commerce sales in the countries and verticals we operate in, we
are simultaneously increasing our addressable market and building
the foundation for long-term growth by improving the business mix
among the Company’s strategic pillars - 1P, private label and
marketplace operations. These activities will generate additional
operating leverage as we gain scale.
Consolidated group GMV in 3Q-2017 increased by 17.0% (FX neutral
basis), resulting in a 23.4% (FX neutral basis) growth in the nine
months period ended September 30, 2017 on top of a resilient growth
rate posted in 2016. This result reflects expanded market share and
an increase in our customer base. In the 3Q-2017, the number of
registered members increased 21.2% year-over-year (YoY) and our
active customer base expanded 18.5%, despite lighter revenues.
Importantly, we continue to be at the forefront of the mobile
opportunity with 46.7% of orders placed from mobile devices, up
from 33.5% in 3Q-2016, resulting in greater customer loyalty and
purchase frequency.
In Brazil, Netshoes and Zattini’s stores continued to show
growth in 3Q-2017, fueled by (i) the robust performance of
marketplace GMV – 419% growth YoY, reaching R$53.0 million or a
9.7% penetration over total GMV in Brazil (up from 2.2% penetration
in 3Q-2016) and (ii) strong sales of private label products, which
reached 11.0% of net sales in Brazil. The sporting goods category
recorded a GMV growth of 15.7%, while Zattini’s fashion and beauty
category increased 51.9% on top of a strong growth rate in
2016.
In addition to these categories, we operate a B2B initiative in
Brazil - mainly related to nutritional products – which represented
2.6% of the Brazilian operation GMV in 3Q-2017. Due to the adverse
results in our B2B business that negatively impacted the Company’s
results, our management decided to substantially reduce the scale
of the B2B business, while focusing on improving the segment’s
economics, working capital dynamics and overall business model.
Within this context, we extended payment terms to some B2B clients
that we believe have good sales prospects, and took the decision to
conservatively record a portion of our B2B accounts receivables as
provision for allowance of doubtful accounts. The impact on
consolidated results for the quarter was R$14.7 million (3.3% of
net sales). Our management team is now focused on finalizing the
necessary steps to develop improved controls in order to achieve
better economics in what we believe is a strong business
opportunity. Excluding the B2B business, GMV in Brazil on an FX
neutral basis was up 20.6% over 3Q-2016 and up 21.8% in the
accumulated nine months period of 2017.
Consolidated Net Sales in 3Q-2017 increased 8.8% YoY on an FX
neutral basis due to the significant increase in marketplace
penetration and the negative impact of the B2B business resulting
from lower sales and additional returns recorded during the
quarter: Excluding the B2B business, Net Sales increased by 11.7%
YoY in 3Q-2017 (13.3% on an FX neutral basis), leading to a 12.8%
YoY growth for the nine months period (15.5% on an FX neutral
basis).
During the last twelve months, relevant improvements were made
in our working capital cycle. We remain on target to achieve
further improvements as we (i) work towards our goal to achieve a
90 to 100 days inventory level in 2018 and (ii) make additional
changes to our client installment payment policy during the coming
quarters.
We are pleased with the development of our business as we build
one of Latin America’s most important digital consumer platforms.
We are maintaining a good growth rate on our categories through
strong and accelerated customer metrics, while consolidating our
leadership in the sporting goods category and moving fast in
developing the correct environment for fashion. The rapid
development of our high-quality marketplace operation, now being
complemented by Netshoes Deliveries, shows that we are on the right
track to help our vendors and partners in achieving excellence in
the service they provide to our customers, keeping a very high
customer satisfaction index. We are also investing a great part of
our time and energy in our private label assortment to offer better
products to our customers every month, more importantly, always
respecting our partners.
As a tech Company, we are focused on increasing the
customization, doing everything in our power to achieve maximum
efficiency and boost the customer service perception. For example,
we offer customers the option of collecting their purchases from
almost 7 thousand pick up points in an innovative partnership with
Correios.
Important to highlight that we are now heading towards the most
important quarter of the year, the fourth quarter, when
historically we recorded an average of 35% of our total sales with
relevant effects to profitability. The Company has prepared itself
for a great Black November campaign and year-end sales.
Finally, we are building a solid tech platform, which is more
complete, customized and robust every year. Our expectations for
the long-term are optimistic and remain unchanged.
Operating and Financial
Highlights
Change % Change
% Operating Data
3Q-
2016
3Q-
2017
YoY
YoY FX
Neutral
9M-
2016
9M-
2017
YoY
YoY FX
Neutral
Registered Members (in millions) 17.3 20.9 21.2% 17.3 20.9
21.2% Active Customers (in millions) 5.2 6.2 18.5% 5.2 6.2
18.5% Invoiced Orders Placed by Repeat Customers % 74.6% 76.5%
+1.9p.p. 74.5% 76.2% +1.7p.p. Orders Placed from Mobile Device %
33.5% 46.7% +13.2p.p. 42.4% 43.7 +1.3p.p. Invoiced Orders (in
thousands) 2,415.4 2,894.7 19.8% 6,773.0 8,256.4 21.9% Average
Basket Size (in R$) 207.3 205.6 -0.8% 0.6% 209.4 205.4 -1.9% 0.5%
GMV (in millions)(1) 528.0 609.5 15.4% 17.0% 1,468.4 1,771.4 20.6%
23.4% Marketplace GMV (as % of total GMV) 1.9% 8.7%
+6.8p.p. 0.9% 6.9%
+5.9p.p.
Change % Change % Financial Data (In
R$ Millions)
3Q-
2016
3Q-
2017
YoY
YoY FX
Neutral
9M-
2016
9M-
2017
YoY
YoY FX
Neutral
Net Sales 414.2 444.6 7.3% 8.8% 1,163.8 1,302.2 11.9% 14.5% Net
Sales - Brazil 370.3 397.0 7.2% 1,028.2 1,160.0 12.8% Net Sales -
International 43.9 47.7 8.5% 22.2% 135.6 142.2 4.9% 27.0% Gross
Margin % 33.2% 32.2% -1.0p.p. 33.0% 32.7% -0.3p.p. EBITDA Margin %
-0.6% -4.6% -4.1p.p.
-4.4% -2.0% +2.3p.p.
(1) For a reconciliation of net sales to GMV, see page 10
below.
Operating Highlights
- Consistent growth in customer metrics,
with registered members reaching 20.9 million in 3Q-2017 (+21.2%
YoY) and active customers reaching 6.2 million (+18.5% YoY). During
the quarter, invoiced orders from repeat customers represented
76.5% of total orders, a 1.9 p.p. increase YoY.
- Continued migration of consumer
purchasing habits to mobile devices, with 46.7% of total orders
placed from mobile devices in 3Q-2017, an 13.2 p.p. increase over
3Q-2016.
- Total marketplace GMV in 3Q-2017 was
R$53.0 million, up 419% over same period last year, and accounted
for 9.7% of GMV in Brazil (8.7% of total GMV). As of September 30,
2017, total vendor base was comprised of 660 vendors, an increase
of 452 qualified third-party B2C vendors when compared to 3Q-2016
and 155 vendors higher than 2Q-2017 (+31%). The Company keeps a
rigorous control over customer satisfaction, contributing to the
maintenance of the best in class NPS score.
- The Company’s private label collection,
white label brands and licensing products continues to grow as a
proportion of net sales, reflecting increased sales of the existing
portfolio and new products. Sales for these categories represented
9.8% of net sales in 3Q-2017 (11.0% in Brazil), equating to a 2.4
p.p. increase YoY. Management sees an exciting opportunity to
further develop the assortment of private label products as we
further evaluate its potential in fashion in 2018.
- GMV in 3Q-2017 increased 15.4% YoY
(+17.0% on an FX neutral basis) to R$609.5 million, mainly driven
by a 19.8% increase in the number of invoiced orders, partially
offset by lower B2B sales. Excluding B2B business, GMV was up 18.9%
YoY (+20.6% on an FX neutral basis). GMV for 9M-2017 was R$1,771.4
million, representing a 20.6% YoY increase on top of a strong
growth rate recorded in 2016 (+23.4% on an FX neutral basis).
- Netshoes (sporting goods) in Brazil
recorded accelerated and above sector average growth for the fourth
consecutive quarter, with 15.7% GMV growth YoY in 3Q-2017.
- Zattini’s fashion and beauty category
GMV increased 51.9% on top of a strong growth rate in 2016. Also,
Zattini continues to increase its addressable market through the
addition of new categories. In September 2017, it began selling
toys through marketplace, partnering with Ri-Happy in Brazil.
- During the quarter, further
improvements were made to enhance the customer experience while
also streamlining operations. This was accomplished by implementing
an integrated IT sales platform. Zattini is already operating under
the new platform.
- Customers in Brazil now have the option
to pick up their orders in one of the approximately seven thousand
Correios branches. This initiative gives customers more delivery
options to choose from.
- Also, Marketplace vendors now have at
their disposal the services of Netshoes’ couriers. This initiative
should improve client conversion rates as it helps vendors to
reduce logistics costs and delivery time, improving economics and
the customer experience.
Financial Highlights
- Consolidated Net sales were R$444.6
million in 3Q-2017, a 7.3% increase YoY (+8.8% on an FX neutral
basis). Sales were negatively impacted by an additional R$7.1
million in returns recorded in the B2B business, and lower B2B
sales as Management implements the corrective actions to rebalance
inventories in the different sales channels. Excluding B2B
business, Net Sales grew 11.7% or 13.3% on a FX neutral basis in
3Q-2017. In 9M-2017, Net Sales amounted to R$1,302.2 million,
representing an 11.9% increase YoY (+14.5% on an FX neutral basis).
Excluding B2B business, Net Sales increased by 12.8% during the
period or 15.5% on a FX neutral basis.
- The Brazilian operation’s Net Sales
increased 7.2% YoY to R$397.0 million, or 12.1% excluding the B2B
business. The International operation posted Net Sales growth of
8.5% on an as reported basis and 22.2% on an FX neutral basis. In
9M-2017, Net Sales in Brazil amounted to R$1,160.0 million (+12.8%
YoY) and R$142.2 million in the international operation (+4.9% YoY
and +27.0% YoY on an FX neutral basis).
- Gross profit totaled R$143.2 million
(32.2% gross margin) in 3Q-2017, compared to R$137.5 million (33.2%
gross margin) in 3Q-2016. The positive margin contribution from
marketplace and the private label business as well as additional
shipping revenues, which together contributed to a 2.3p.p. margin
expansion in 3Q-2017, was offset by select product discounting
initiatives resulting from a warmer winter season in Brazil and
lower tax benefits due to the change in the online retail taxation
regime during 2016 in Brazil. Gross profit amounted to R$425.8
million in 9M-2017 (32.7% gross margin) compared to R$384.6 million
in 9M-2016 (33.0% gross margin).
- Adjusted Selling and Marketing Expenses
were R$131.1 million (29.5% of net sales) in 3Q-2017, up 22.7%
compared to R$106.8 million in 3Q-2016 (25.8% of net sales). This
YoY increase was primarily driven by the R$14.7 million recorded as
a provision for allowance of doubtful accounts of the B2B accounts
receivable as a result of the business extended payment terms to
clients. In 9M-2017, Adjusted Selling and Marketing Expenses
amounted to R$351.6 million (27.0% of net sales) compared with
R$313.0 million (26.9% of net sales) recorded in 9M-2016.
- Adjusted General and Administrative
Expenses were R$33.0 million (7.4% of net sales) in 3Q-2017,
compared to R$38.4 million in 3Q-2016 (9.3% of net sales),
representing a 1.8 p.p. improvement YoY due to expense reduction
initiatives and operating leverage. Adjusted General and
Administrative Expenses in 9M-2017 amounted to R$94.0 million (7.2%
of net sales), a 3.0 p.p. improvement compared to the R$119.1
million (10.2% of net sales) recorded in 9M-2016.
- Consolidated EBITDA was negative R$20.7
million (-4.6% of net sales) in 3Q-2017, compared to negative R$2.3
million (-0.6% of net sales) in 3Q-2016. As mentioned, in the
quarter EBITDA was further impacted by the provision related to the
B2B business in the amount of R$14.7 million. Excluding this
effect, EBITDA in 3Q-2017 would have been negative R$5.9 million
(-1.3% of net sales). EBITDA for 9M-2017 amounted to negative
R$26.5 million (-2.0% of net sales), compared to a negative R$50.7
million (-4.4% of net sales) for the same period last year, an
improvement of 2.3 p.p. Excluding the non-recurring effects in
1Q-20171 and the already mentioned provision recorded in 3Q-2017,
EBITDA for 9M-2017 would have been negative R$34.7 million (-2.7%
of net sales), representing a 1.7 p.p. margin improvement over
9M-2016.
- EBITDA for the Brazilian operation
(“EBITDA Brazil”) was negative R$8.4 million in 3Q-2017, compared
with R$7.0 million for the same period last year. The EBITDA margin
was -2.1% in 3Q-2017, compared with 1.9% in 3Q-2016. Excluding the
B2B business negative effects, EBITDA for the 3Q-2017 would have
been R$6.3 million (1.6% of net sales). EBITDA Brazil for 9M-2017
was R$10.6 million (0.9% of net sales), compared to negative R$15.3
million (-1.5% of net sales) for the same period last year, an
improvement of 2.4 p.p. Excluding the non-recurring effects in
1Q-2017¹ and the B2B provision effect in 3Q-2017, EBITDA for the
9M-2017 would have been R$2.3 million (0.2% of net sales),
representing a 1.7 p.p. margin improvement over 9M-2016.
- EBITDA for the International operations
(“EBITDA International”) was negative R$8.6 million (-18.1% EBITDA
margin) in 3Q-2017, down 1.0 p.p. over 3Q-2016. EBITDA
International for 9M-2017 was negative R$29.2 million (-20.5% of
net sales), compared to negative R$29.1 million (-21.5% of net
sales) for the same period last year, representing a 1.0 p.p.
margin improvement.
- Net loss of R$47.8 million (-10.7% net
margin) in 3Q-2017, compared to a net loss of R$30.3 million in
3Q-2016 (-7.3% net margin), representing a 3.4 p.p. margin decrease
mainly due to the above-mentioned effects. In 9M-2017, Net loss was
negative R$120.6 million (-9.3% net margin), a 1.5 p.p. margin
improvement when compared with a net loss of R$125.6 million
(-10.8% net margin) recorded in 9M-2016. Excluding the
non-recurring effects in 1Q-2017 and the B2B provision for doubtful
accounts recorded in 3Q-2017, Net loss would have been negative
R$33.0 million in 3Q-2017 and negative R$128.9 million in
9M-2017.
Subsequent Events
- New Chief Business Transformation
Officer (CBTO): In October 2017 Gabriela Garcia joined Netshoes
with the mandate to lead the internal cultural transformation and
support the successful execution of the Company’s short-term
improvements and long-term value and strategy. She has the
responsibility of aligning and leading the organization and its
human resources, taking accountability for change and ensuring the
organization delivers results quickly and with suitably high
ambition. With a strong cross-functional background, Gabriela has
over 20 years of multi-skilled experience working with companies
such as McKinsey & Company and Hypermarcas, where she led
M&A and integration teams in over 20 M&A transaction.
Gabriela holds a degree in industrial engineering from Universidade
of São Paulo (USP) and an MBA from Harvard Business School.
- As previously mentioned, in July 2017
the Company contracted a special credit line with FINEP totaling
R$79.7 million to finance future technology research and
development initiatives. FINEP is a Brazilian state-owned
institution dedicated to promoting the country’s development in
science, technology and innovation. This credit line has more
favorable market terms and conditions when compared to traditional
bank financing. The first tranche of R$25.8 million was received in
October 2017 and the subsequent tranches will be disbursed
according to the Company’s progress on specified projects. The
proceeds will be amortized over nine years.
Financial and Operating
Performance
Change % Change
% Consolidated P&L (In R$ Millions)
3Q-
2016
3Q-
2017
YoY
FX
Neutral
9M-
2016
9M-
2017
YoY
FX
Neutral
GMV ¹ 528.0 609.5 15.4%
17.0% 1,468.4 1,771.4 20.6%
23.4% Net Sales – Brazil 370.3
397.0 7.2% 1,028.2 1,160.0 12.8%
Net Sales – International 43.9 47.7
8.5% 22.2% 135.6 142.2 4.9%
27.0%
Net Sales 414.2 444.6
7.3% 8.8% 1,163.8
1,302.2 11.9% 14.5%
Cost of Sales (276.8) (301.4) 8.9%
(779.1) (876.4) 12.5% Gross
Profit 137.5 143.2 4.2% 384.6
425.8 10.7% % Gross Margin 33.2% 32.2% -1.0p.p. 33.0%
32.7% -0.3p.p.
Adjusted Operating Expenses
(139.8) (163.9) 17.2% (435.3)
(452.3) 3.9% % of Sales -33.7% -36.9% 3.1p.p. -37.4%
-34.7% -2.7p.p. Adjusted Selling and Marketing Expenses ²
(106.8) (131.1) 22.7% (313.0) (351.6) 12.3% % of Sales -25.8%
-29.5% 3.7p.p. -26.9% -27.0% 0.1p.p. Adjusted General and
Administrative Expenses ² (38.4) (33.0) -14.0% (119.1) (94.0)
-21.1% % of Sales -9.3% -7.4% -1.8p.p. -10.2% -7.2% -3.0p.p.
Other Operating Expenses (0.6) (1.1) 67.0% (4.0) (3.2) -20.8% % of
Sales -0.2% -0.2% 0.1p.p. -0.3% -0.2% -0.1p.p. Certain Other
Net Financial Result 6.1 1.3 -78.5% 0.9 (3.5) -509.3% % of Sales
1.5% 0.3% 1.2p.p. 0.1% -0.3% 0.3p.p.
EBITDA (2.3)
(20.7) -793.4%
(50.7) (26.5) 47.8%
% of Sales -0.6% -4.6% -4.1p.p. -4.4% -2.0% 2.3p.p.
Amortization and Depreciation (8.2) (7.3) -11.1% (23.3) (23.0)
-1.2% % of Sales -2.0% -1.6% -0.3p.p. -2.0% -1.8% -0.2p.p.
Net Adjusted Financial Result ³ (19.8) (19.8) 0.1% (51.6) (71.2)
38.0% % of Sales -4.8% -4.5% -0.3p.p. -4.4% -5.5% 1.0p.p.
Income/(Loss)
Before Income Tax (30.3) (47.8)
-57.6% (125.6)
(120.6) 3.9% % of Sales -7.3%
-10.7% -3.4p.p. -10.8% -9.3% 1.5p.p. Current Income Tax - -
- - (0.0) -
Net Income/(Loss) (30.3) (47.8)
-57.6% (125.6)
(120.6) 3.9% % of Sales -7.3%
-10.7% -3.4p.p. -10.8% -9.3% 1.5p.p.
(1) For a reconciliation of net sales to GMV, see page 10
below.
(2) For a reconciliation of Marketing and Selling expenses to
Adjusted Marketing and Selling Expenses and General and
Administrative Expenses to Adjusted General and Administrative
Expenses, see page 12 below.
(3) For a reconciliation of financial income (expense) to Net
Adjusted Financial Result, see page 11 below.
Net Working Capital Cycle
In Days
3Q-
2016
3Q-
2017
Trade Accounts Receivable 26 13 Inventories 144 141
Trade Accounts Payable 107 110
Cash Conversion
Cycle 63 44
In 3Q-2017, the Company’s net working capital cycle was
reduced by 19 days to 44 days, compared to 63 days in
3Q-2016.
The inventory cycle was reduced by 3 days when compared to
3Q-2016 but was negatively impacted by the B2B business as the
Company accepted product returns from B2B vendors to rebalance
inventory in the sales channel. Excluding the B2B business, the
inventory cycle would have been 117 days, 24 days lower when
compared to 141 days in 3Q-2016 (ex-B2B), well on the way to
reaching the target of 90 to 100 days in 2018.
Trade accounts receivable cycle was reduced by 13 days to 13
days in 3Q-2017 due to the factoring of credit card receivables and
the increase in the minimum amount for installments, partially
offset by the extended payment terms of the B2B business.
The trade accounts payable cycle increased 3 days to 110
days.
As already mentioned, there remains significant opportunity to
further streamline the working capital cycle to achieve a negative
cash conversion cycle. The Company has increased the minimum
threshold for credit card installment payments from R$25.0 to
R$40.0 and reduced the maximum number of installments from 12 to
10, which is already benefiting the trade accounts receivable
cycle. Management is also committed to further reduce the inventory
cycle through adjustments in the B2B business, increase the
Marketplace share over total GMV and by gradually adjusting
procurement curves with investments in technology. Furthermore,
trade accounts payable tends to increase as Zattini grows its share
of net sales and the Company continues to expand its scale.
Indebtedness
Debt (In R$ Millions)
3Q-
2016
4Q-
2016
2Q-
2017
3Q-
2017
Working Capital 258.3 263.7
260.9 191.5 Short-term 7.7 36.4 76.0
67.3 Long-term 250.6 227.2 185.0 124.2
Debenture
131.6 122.3 103.2 93.7 Short-term 38.7
38.6 38.1 38.0 Long-term 92.9 83.6 65.1 55.8
Other
2.6 1.4 1.0 1.5 Short-term 1.8 0.9 0.9
1.5 Long-term 0.8 0.5 0.1 (0.0)
TOTAL DEBT (R$)
392.5 387.4 365.1
286.7 Short-term (%) 12% 20% 31% 37% Long-term (%) 88% 80%
69% 63%
(-) Total Cash (119.5) (154.5)
(459.4) (342.7) Cash and Cash Equivalents (72.3)
(111.3) (419.9) (313.9) Restricted Cash (47.2) (43.2)
(39.5) (28.8)
NET DEBT (R$)
273.0 232.9 (94.3)
(56.0)
Total debt in 3Q-2017 amounted to R$286.7 million (of which 37%
was short-term debt), comprised of R$191.5 million of working
capital credit lines, R$93.7 million of debentures and R$1.5
million of other credit lines. During the quarter, the Company
pre-paid R$65.1 million on one of its existing working capital
credit lines to reduce financial expenses and gain efficiency in
future results.
In 3Q-2017, total cash position amounted to R$342.7 million and
total net cash position was R$56.0 million, compared to net debt of
R$273.0 million in 3Q-2016.
Cash Flow
Consolidated Cash Flow Statement (In R$ Millions)
3Q-
2016
3Q-
2017
9M-
2016
9M-
2017
Net loss (30.3) (47.8) (125.6) (120.6) Depreciation
and amortization 8.0 7.3 22.3 23.0 Interest expense, net 27.9 23.6
70.3 85.5 Share-based payment (1.8) (0.1) 1.7 (13.6) Others 6.7
17.2 8.7 28.9
Adjusted Net Loss 10.5 0.2
(22.6) 3.1 Trade accounts receivable (14.8)
27.6 138.1 112.5 Inventories (34.8) (55.0) (120.5) (95.8) Trade
accounts payable / Reverse Factoring 24.0 33.4 26.1 (17.8)
Changes in Working Capital (25.5) 6.0
43.7 (1.1) Restricted Cash (5.9) 3.9 2.0 7.0
Recoverable taxes (15.5) (14.4) (46.6) (49.1) Judicial deposits
(9.7) (7.1) (27.9) (30.7) Accrued expenses 1.2 1.8 (23.4) (29.6)
Taxes and contributions payable (0.9) (1.0) (0.9) (0.8) Others
(17.6) 18.4 (22.9) 2.2
Total Changes in Assets and
Liabilities (48.3) 1.6
(119.6) (101.0) Net Cash Provided by (Used
In) Operating Activities (63.4) 7.8
(98.5) (98.9) Capex (24.7)
(16.0) (59.8) (43.2) Interest received on installment sales 0.9 0.9
1.5 1.1 Restricted cash 3.4 6.7 (5.0)
7.4
Net Cash Provided by (Used in) Investing Activities
(20.4) (8.4) (63.2)
(34.8) Proceeds / Payment of debt 126.1 (79.9)
70.9 (9.0) Payments of interest (34.0) (22.4) (82.8) (83.4)
Proceeds from issuance of common stock - (1.1)
- 423.4
Net Cash Provided by (Used in) Financing
Activities 92.0 (103.5)
(11.9) 331.0 Effect of exchange rate
changes on cash and cash equivalents 2.4 (2.0) (3.1) 5.3
Change
in Cash and Cash Equivalents 10.7
(106.0) (176.8) 202.6
Cash and cash equivalents, beginning of period 61.6 419.9 249.1
111.3 Cash and cash equivalents, end of period 72.3 313.9 72.3
313.9
During 3Q-2017, the Company generated positive cash flows from
operating activities of R$7.8 million of cash, which were primarily
attributable to R$6.0 million of cash provided by changes in
working capital (a R$71.2 million improvement when compared to
R$63.4 million of cash used in 3Q-2016). Factored credit card
receivables amounted to R$268.2 million in 3Q-2017, an increase of
R$13.1 million over 2Q-2017, and R$176.4 million in 3Q-2016, a
drecrease of R$1.9 million over 2Q-2016.
In the 9M-2017, the Company used R$98.9 million in its operating
activities compared to R$98.5 million used in 9M-2016. During the
current year, R$55.7 million were added to the operation through
factoring of credit card receivables, compared to R$106.4 million
added during the 9M-2016, reflecting a R$50.3 million improvement
in the year-to-date operating cash flow YoY.
Capital expenditures for the 3Q-2017 amounted to R$16.0 million
(3.6% of net sales), partially offset by the R$6.7 million release
of restricted cash as a result of the reduction in collateral from
debt.
In 3Q-2017, the Company used R$103.5 million to pay principal
and interest on debt, from which R$65.1 million were used to prepay
part of Company’s debt to reduce financial expenses. In 3Q-2016,
R$92.0 million were provided by the emission of new debt, net of
interest payments.
As a result, the change in cash and cash equivalents was
negative R$106.0 million in 3Q-2017, compared to positive R$10.7
million in 3Q-2016.
Contributing to further improvements in future operating cash
flow, recent changes in Brazilian judicial deposits should bring
additional cash release in the upcoming months. The deposits that
have been made on a monthly basis related to the PIS/COFINS (VAT)
sales tax claim against the Brazilian tax authority ceased in
August/17 supported by an injunction obtained by the Company (as
the Brazilian Federal Supreme Court has already ruled in favor of
the Companies in March-2017), contributing approximately to a
R$30-40 million yearly cash release in the future.
3Q-2017 Conference Call
Information
A conference call with live webcast will be held tomorrow,
November 14, 2017 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 passcode for the conference line is
1018177. 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, Argentina, and
Mexico. 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 eCommerce 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) “Adjusted Selling and Marketing Expenses” is defined as
selling and marketing expenses less amortization and depreciation
expenses;
(3) “Adjusted General and Administrative Expenses” is defined as
general and administrative expenses less amortization and
depreciation expenses;
(4) “Net Adjusted Financial Result” is defined as the sum of
financial income and financial expenses less “Certain Other Net
Financial Result“;
(5) “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;
(6) “Adjusted Operating Expenses” is defined as operating
expenses (selling and marketing, general and administrative and
other operating expenses) less amortization and depreciation
expenses, plus “Certain Other Net Financial Result”;
(7) “EBITDA” is defined as net income/loss, plus net adjusted
financial result, plus income tax, plus depreciation and
amortization expenses;
(8) “EBITDA Brazil” is defined as net income/loss, plus net
adjusted financial result, plus income tax, plus depreciation and
amortization expenses;
(9) “EBITDA International” is defined as net income/loss, plus
net adjusted financial result, plus income tax, plus depreciation
and amortization expenses;
(10) “EBITDA Margin” is defined as 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-2016
3Q-2017
9M-2016
9M-2017
Net sales 414.2 444.6 1,163.8 1,302.2
Add (subtract): Sales taxes, net 67.4 77.8 199.8 231.9
Returns 38.9 45.8 94.8 141.6 Marketplace commission fees (2.6)
(11.1) (3.5) (24.7) NCard activation commission fees (0.1)
(0.6) (0.2) (1.3)
Sub-Total:
517.8 556.5 1,454.8
1,649.7 GMV from marketplace 10.2 53.0 13.6 121.7
GMV 528.0 609.5
1,468.4 1,771.4
The following table shows the reconciliation for Net Adjusted
Financial Result and Certain Other Net Financial Result as
described above:
Net Adjusted Financial Result
Reconciliation
(In R$ Millions)
3Q-2016
3Q-2017
9M-2016
9M-2017
Financial Income 8.6 9.4 21.1 24.6
Financial Expenses (22.3) (27.9) (71.9)
(99.2)
Net Financial Result (13.7)
(18.5) (50.7) (74.7) Subtract
Certain Other Net Financial Result: Certain Other Financial
Income: Foreign exchange gain (2.9) (0.9) (2.9) (1.6) Derivative
financial instruments gain 0.0 0.0 0.0 (0.8) Other Financial Income
(0.2) (0.5) (0.7) (0.5) Certain Other Financial Expenses: Foreign
exchange loss (0.5) (1.0) (0.0) 0.8 Derivative financial
instruments loss 0.0 0.0 0.0 0.0 Bank charges (1.8) 0.8 1.9 4.8
Other Financial Expenses (0.6) 0.3 0.9
0.8
Net Adjusted Financial Result (19.8)
(19.8) (51.6) (71.2)
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, EBITDA Brazil and EBITDA International as described
above:
Consolidated EBITDA
Reconciliation
(In R$ Millions)
3Q-2016 3Q-2017 9M-2016
9M-2017 Net loss (30.3)
(47.8) (125.6) (120.6)
Add (subtract): Income tax expense
0.0 0.0 0.0 0.0 Net Adjusted Financial Result 19.8 19.8 51.6 71.2
Amortization and Depreciation 8.2 7.3 23.3
23.0
EBITDA (2.3) (20.7)
(50.7) (26.5) Net Sales 414.2
444.6 1,163.8 1,302.2
EBITDA Margin %
-0.6% -4.6% -4.4%
-2.0% EBITDA Brazil Reconciliation
(In R$ Millions)
3Q-2016 3Q-2017 9M-2016
9M-2017 Net loss (15.9)
(32.3) (78.6) (71.8)
Add (subtract): Income tax expense 0.0
0.0 0.0 0.0 Net Adjusted Financial Result 15.5 17.6 42.6 62.5
Amortization and Depreciation 7.4 6.3 20.7
19.9
EBITDA 7.0 (8.4)
(15.3) 10.6 Net Sales 370.3
397.0 1,028.2 1,160.0
EBITDA Margin %
1.9% -2.1% -1.5%
0.9%
EBITDA International
Reconciliation
(In R$ Millions)
3Q-2016 3Q-2017 9M-2016
9M-2017 Net loss (10.7)
(11.0) (38.0) (36.6)
Add (subtract): Income tax expense 0.0
0.0 0.0 0.0 Net Adjusted Financial Result 2.9 2.2 7.9 6.7
Amortization and Depreciation 0.3 0.2 1.0
0.7
EBITDA (7.5) (8.6)
(29.1) (29.2) Net Sales 43.9
47.7 135.6 142.2
EBITDA Margin %
-17.1% -18.1% -21.5%
-20.5%
The following table shows the reconciliation for Adjusted
Operating Expenses, as described above:
Adjusted Operating Expenses Reconciliation
(In R$ Millions)
3Q-2016 3Q-2017 9M-2016
9M-2017 Selling and
Marketing Expenses (108.9) (132.2) (318.7) (354.7) Add (subtract):
Amortization and Depreciation 2.1 1.1 5.7 3.1
Adjusted Selling
and Marketing Expenses (106.8) (131.1)
(313.0) (351.6) General and Administrative
Expenses (44.5) (39.2) (136.7) (113.8) Add (subtract): Amortization
and Depreciation 6.1 6.2 17.5 19.9
Adjusted General and
Administrative Expenses (38.4) (33.0)
(119.1) (94.0) Other Operating Expenses
(0.6) (1.1) (4.0) (3.2)
Certain Other Net Financial Result 6.1 1.3
0.9 (3.5)
Adjusted Operating Expenses
(139.8) (163.9) (435.3)
(452.29)
Certain Definitions:
Registered members
Is the sum of all people that have completed the registration
form in all the Company’s websites.
Active customers
Are customers who made purchases online with the Company during
the preceding twelve months as of the relevant dates.
Repeat customers
Are the sum of orders placed by customers who have previously
purchased from the Company during the preceding twelve months as of
the relevant dates.
Invoiced orders
Are 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
Is 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”)
Is the sum of net sales, returns, GMV from marketplace and net
sales taxes. Excludes marketplace and NCard activation commission
fees.
Net Working Capital Cycle
Is 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
Mexico and Argentina remained constant during the period
comparison.
NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES Unaudited
Condensed Consolidated Statements of Financial Position
December 31, 2016 and September 30, 2017 (Reais and
Dollars in thousands) December 31,
September 30, Assets 2016 2017
2017 Current assets:
BRL BRL USD Cash
and cash equivalents R$111,304 R$313,928 U$99,093 Restricted cash
21,946 14,951 4,719 Trade accounts receivables, net 213,994 79,128
24,977 Inventories, net 352,011 445,819 140,726 Recoverable taxes
66,329 79,476 25,087 Other current assets 59,127 46,753
14,758
Total current assets 824,710
980,055 309,360 Non-current assets:
Restricted cash 21,254 13,861 4,375 Judicial deposits 71,817
102,523 32,362 Recoverable taxes 33,178 68,349 21,575 Other assets
950 1,950 616 Due from related parties 17 12 4 Property and
equipment, net 74,202 73,411 23,173 Intangible assets, net
87,593 107,931 34,069
Total non-current assets
289,011 368,037 116,174 Total
assets 1,113,722 1,348,092 425,534
December 31, September 30,
Liabilities and Shareholders' Equity 2016 2017
2016 Current liabilities: BRL
BRL USD Trade accounts payable R$335,430 R$302,224
U$95,399 Reverse factoring 27,867 45,498 14,362 Current portion of
long-term debt 75,956 106,781 33,706 Derivative financial
liabilities 186 0 Taxes and contributions payable 15,249 14,080
4,444 Deferred revenue 6,628 6,628 2,092 Accrued expenses 122,048
87,211 27,529 Other current liabilities 33,331 38,640 12,198
Total current liabilities 616,695
601,062 189,730 Non-current
liabilities: Long-term debt, net of current portion 311,426
179,961 56,806 Provision for labor, civil and tax risks 5,177
10,236 3,231 Share-based payment 30,139 0 0 Deferred revenue 26,247
23,754 7,498 Other non-current liabilities 13 21 7
Total
non-current liabilities 373,002 213,972
67,542 Total liabilities 989,697
815,034 257,272 Shareholders' equity:
Share capital 141 244 77 Additional-paid in capital 821,988
1,347,266 425,273 Treasury shares (1,533) (1,533) (484) Accumulated
other comprehensive loss (19,577) (15,386) (4,857) Accumulated
losses (677,379) (797,518) (251,742)
Equity attributable
to owners of the parent 123,640 533,073
168,267 Equity attributable to non-controlling interests
385 (15) (5)
Total shareholders' equity
124,025 533,058 168,262 Total
liabilities and shareholders' equity 1,113,722
1,348,092 425,534 NETSHOES (CAYMAN) LIMITED
AND SUBSIDIARIES Unaudited Condensed Consolidated Statements
of Profit or Loss For the three and nine-month periods ended
September 30, 2016 and 2017 (Reais and Dollars in thousands,
except loss per share) Nine months
ended September 30, Three months ended September 30,
2016 2017 2017 2016
2017 2017 BRL BRL
USD BRL BRL USD Net Sales R$1,163,752
R$1,302,196 U$411,047 R$414,245 R$444,636 U$140,352 Cost of sales
(779,140) (876,378) (276,634) (276,753) (301,423) (95,146)
Gross Profit 384,612 425,818
134,413 137,492 143,213 45,206
Operating expenses: Selling and marketing expenses (318,749)
(354,744) (111,977) (108,923) (132,218) (41,735) General and
administrative expenses (136,667) (113,832) (35,932) (44,516)
(39,186) (12,369) Other operating expenses, net (4,031)
(3,192) (1,008) (644) (1,076) (340)
Total operating
expenses (459,447) (471,768)
(148,917) (154,083) (172,480)
(54,444) Operating loss (74,835)
(45,950) (14,504) (16,591) (29,267)
(9,238) Financial income 21,115 24,575 7,757 8,624
9,380 2,961 Financial expenses (71,855) (99,250)
(31,329) (22,335) (27,866) (8,796)
Loss before income tax
(125,575) (120,625) (38,076)
(30,302) (47,753) (15,073) Income tax
expense 0 (2) (1) 0 0 0
Net Loss
(125,575) (120,627) (38,077)
(30,302) (47,753) (15,073) Net
loss attributable to: Owners of the Parent (125,059) (120,139)
(37,923) (30,374) (47,640) (15,038) Non-controlling interests (516)
(488) (154) 72 (113) (36) Loss per share attributable to
owners of the Parent Basic and diluted
R$(5.98)
R$(4.63) U$(1.46) R$(1.45) R$(1.83)
U$(0.58) NETSHOES (CAYMAN) LIMITED AND
SUBSIDIARIES Unaudited Condensed Consolidated Statements of
Cash Flows For the nine-months ended September 30, 2016 and
2017 (Reais and Dollars in thousands) Nine
months ended September 30, 2016 2017
2017 BRL BRL USD Cash flows from
operating activities:
Net loss R$(125,575)
R$(120,627) U$(38,077) Adjustments to reconcile net
loss to net cash used in operating activities: Allowance for
doubtful accounts 4,096 21,636 6,830 Depreciation and amortization
22,255 22,971 7,251 Loss on disposal of property and equipment, and
intangible assets 395 187 59 Share-based payment 1,740 (13,552)
(4,278) Deferred taxes 2 Provision for contingent liabilities 1,443
6,971 2,200 Interest expense, net 70,316 85,451 26,973 Provision
for inventory losses 2,720 (87) (28) Other 0 179 57 Changes in
operating assets and liabilities:
(Increase) decrease in:
Restricted cash 2,037 6,994 2,208 Derivative financial instruments
148 0 Trade accounts receivable 138,061 112,494 35,510 Inventories
(120,482) (95,799) (30,240) Recoverable taxes (46,593) (49,054)
(15,484) Judicial deposits (27,874) (30,706) (9,693) Other assets
(21,711) 5,998 1,893
Increase (decrease) in: Derivative
financial instruments (177) (186) (59) Trade accounts payable
21,602 (29,294) (9,247) Reverse factoring 4,525 11,489 3,627 Taxes
and contributions payable (912) (783) (247) Deferred revenue
(1,310) (2,493) (787) Accrued expenses (23,367) (29,598) (9,342)
Share-based payment (7,426) (2,058) (650) Other liabilities
7,548 922 291
Net cash provided by (used in) operating
activities (98,541) (98,943)
(31,233) Cash flows from investing activities: Purchase of
property and equipment (21,441) (5,931) (1,872) Purchase of
intangible assets (38,379) (37,311) (11,777) Interest received on
installment sales 1,540 1,075 339 Restricted cash (4,950)
7,375 2,328
Net cash provided by (used in) investing
activities (63,231) (34,792)
(10,982) Cash flows from financing activities: Proceeds from
debt 146,023 131,070 41,373 Payments of debt (75,085) (140,033)
(44,202) Payments of interest (82,825) (83,389) (26,322) Proceeds
from issuance of common shares 0 423,388 133,645
Net cash
provided by (used in) financing activities
(11,888) 331,036 104,494 Effect of exchange
rate changes on cash and cash equivalents (3,098) 5,322
1,680
Change in cash and cash equivalents
(176,757) 202,623 63,959 Cash and cash
equivalents, beginning of period 249,064 111,304 35,134
Cash
and cash equivalents, end of period 72,307 313,927 99,093
1 R$10.1 million non-recurring positive effect on cost of sales
relative to VAT tax credits and R$12.9 million non-recurring
positive effect under personnel expenses related to adjustments in
the Company’s stock option plan, both effects registered in
1Q-2017.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171113006363/en/
Netshoes (Cayman) Ltd.Otavio Lyra, +55 11 3028-3528Investor
Relations Officerir@netshoes.comhttp://investor.netshoes.com
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